Filed Pursuant to Rule 424(b)(5)
Registration No. 333-215671
Prospectus
Supplement
(To
Prospectus Dated July 27, 2017)
1,371,430 Shares Common Stock
Series A1 Warrants to Purchase up to 1,388,931 Shares of Common
Stock
Series A2 Warrants to Purchase up to 503,641 Shares of Common
Stock
We are offering 1,371,430 shares of our common stock and warrants
to purchase up to 1,892,572 shares of our common stock. Each share
of our common stock is being sold together with 1.0128 Series A1
Warrants (Series A1
Warrants), each whole Series A1
Warrant to purchase one share of our common stock, and 0.3672 of a
Series A2 Warrant (Series A2
Warrants), each whole Series A2 Warrant to purchase one
share of our common stock. The Series A1
Warrants and the Series A2 Warrants are collectively referred to
herein as the Warrants).
Both Warrants will have an exercise price of $1.82 per share. Each
Series A1 Warrant will be exercisable for a five-year period
commencing on March 7, 2018. Each Series A2 Warrant will be
exercisable for a five-year period commencing on the date of
issuance. The shares of our common stock and Warrants are
immediately separable and will be issued separately, but will be
purchased together in this offering. The shares of our common stock
issuable from time to time upon exercise of the Warrants are also
being offered pursuant to this prospectus supplement and the
accompanying prospectus.
Our common stock is presently traded on the NASDAQ Capital Market
under the symbol “VTGN.” On August 30, 2017, the last
reported sale price of our common stock was $1.82 per share. There
is no established trading market for the Warrants and we do not
expect a market to develop. In addition, we do not intend to apply
for the listing of the Warrants on any national securities exchange
or other trading market. Without an active trading market, the
liquidity of the Warrants will be limited.
As of August 31, 2017, the aggregate market value of our voting and
non-voting common stock held by non-affiliates pursuant to General
Instruction I.B.6. of Form S-3 was $18,843,006 which was calculated
based on 9,191,710 outstanding shares of our voting and non-voting
common stock held by non-affiliates and at a price of $2.05 per
share, the closing sale price of our common stock reported on The
NASDAQ Capital Market on July 31, 2017. As a result, we are
eligible to offer and sell up to an aggregate of $6,280,374 of
shares of our common stock pursuant to General Instruction I.B.6.
of Form S-3. Following this offering, we will have sold securities
with an aggregate market value of $6,279,776 pursuant to General
Instruction I.B.6. of Form S-3 during the prior 12 calendar month
period that ends on, and includes, the date of this prospectus
supplement.
Investing in the common stock involves risks. See “Risk
Factors” beginning on page S-6 of this prospectus
supplement.
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Per Share and Related Warrants
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Total
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Public
offering price
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$1.75
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$2,400,003
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Underwriting discount(1)
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$0.1225
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$168,000
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Proceeds,
before expenses, to us
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$1.6275
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$2,232,003
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____________
(1) We have agreed to reimburse the underwriters
for certain expenses. See “Underwriting.”
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The underwriter expects to deliver the shares and related Warrants
against payment on or about September 6, 2017.
___________________________
Oppenheimer & Co.
The date of this prospectus supplement is August 31,
2017
Table of Contents
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Prospectus Supplement
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S-1
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S-2
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S-5
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S-6
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S-41
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S-42
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S-43
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S-44
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S-45
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S-46
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S-48
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S-48
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S-48
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Prospectus
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ABOUT THIS PROSPECTUS
SUPPLEMENT
This prospectus supplement and the accompanying prospectus form a
part of a registration statement on Form S-3 that we filed with the
Securities and Exchange Commission (the SEC) utilizing a “shelf” registration
process. This document is in two parts. The first part is the
prospectus supplement, which describes the specific terms of this
offering. The second part, the accompanying prospectus, provides
more general information about the securities we may offer from
time to time, some of which may not apply to the securities offered
by this prospectus supplement. Generally, when we refer to this
prospectus, we are referring to both parts of this document
combined. Before you invest, you should carefully read this
prospectus supplement, the accompanying prospectus, all information
incorporated by reference herein and therein, and the additional
information described under “Where You Can Find More
Information” on page S-48
of this prospectus supplement. These documents contain information
you should consider when making your investment decision. This
prospectus supplement may add, update or change information
contained in the accompanying prospectus. To the extent that any
statement that we make in this prospectus supplement is
inconsistent with statements made in the accompanying prospectus or
any documents incorporated by reference therein, the statements
made in this prospectus supplement will be deemed to modify or
supersede those made in the accompanying prospectus and such
documents incorporated by reference therein.
Neither we nor the underwriters have authorized any other person to
provide you with any information that is different. We are offering
to sell, and seeking offers to buy, our securities only in
jurisdictions where offers and sales are permitted. The
distribution of this prospectus supplement and the accompanying
prospectus and the offering of the securities in certain
jurisdictions may be restricted by law. Persons outside the United
States who come into possession of this prospectus supplement
and/or the accompanying prospectus must inform themselves about,
and observe any restrictions relating to, the offering of the
securities and the distribution of this prospectus supplement
and/or the accompanying prospectus outside the United States. This
prospectus supplement and the accompanying prospectus do not
constitute, and may not be used in connection with, an offer to
sell, or a solicitation of an offer to buy, any securities offered
by this prospectus supplement and the accompanying prospectus by
any person in any jurisdiction in which it is unlawful for such
person to make such an offer or solicitation.
We further note that the representations, warranties and covenants
made by us in any agreement that is filed as an exhibit to any
document that is incorporated by reference in the accompanying
prospectus were made solely for the benefit of the parties to such
agreement, including, in some cases, for the purpose of allocating
risk among the parties to such agreements, and should not be deemed
to be a representation, warranty or covenant to you. Moreover, such
representations, warranties or covenants were accurate only as of
the date when made. Accordingly, such representations, warranties
and covenants should not be relied on as accurately representing
the current state of our affairs.
Unless the context otherwise requires, references in this
prospectus supplement to “we”, “us” and “our” refer to VistaGen Therapeutics,
Inc.
PROSPECTUS SUPPLEMENT
SUMMARY
This summary highlights selected information about our company,
this offering and information appearing elsewhere in this
prospectus supplement, in the accompanying prospectus, in the
documents we incorporate by reference and in any free writing
prospectus that we have authorized for use in connection with this
offering. This summary is not complete and does not contain all the
information that you should consider before investing in our
securities. You should read this entire prospectus supplement and
the accompanying prospectus carefully, including the “Risk
Factors” contained in this prospectus supplement, the
accompanying prospectus and the financial statements and the notes
thereto incorporated by reference in this prospectus supplement and
the accompanying prospectus and any free writing prospectus that we
have authorized for use in connection with this offering, before
making an investment decision. This prospectus supplement may add
to, update or change information in the accompanying
prospectus.
Business Overview
We are a clinical-stage biopharmaceutical company focused on
developing new generation medicines for depression and other
central nervous system (CNS) disorders. Unless the context otherwise
requires, the words “VistaGen Therapeutics,
Inc.”
“VistaGen,” “we,” “the Company,” “us” and “our” refer to VistaGen Therapeutics, Inc., a
Nevada corporation. All references to future quarters and years in
this prospectus supplement refer to calendar quarters and calendar
years, unless reference is made otherwise.
AV-101 is our oral CNS product candidate in Phase 2 clinical
development in the United States, initially as a new generation
adjunctive treatment for Major Depressive Disorder
(MDD) in patients with an inadequate response to
standard antidepressants approved by the U.S. Food and Drug
Administration (FDA). AV-101’s mechanism of action
(MOA) involves both NMDA (N-methyl-D-aspartate) and
AMPA (alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid)
receptors in the brain responsible for fast excitatory synaptic
activity throughout the CNS. AV-101’s MOA is
fundamentally differentiated from all FDA-approved antidepressants,
as well as all atypical antipsychotics such as aripiprazole often
used adjunctively to augment them. We believe AV-101 also has
potential as a new treatment alternative for several additional CNS
indications, including epilepsy, Huntington’s disease,
levadopa (L-DOPA)-induced dyskinesia associated with
Parkinson’s disease, and as a potential non-opioid treatment
for neuropathic pain.
Clinical studies conducted at the U.S. National Institute of Mental
Health (NIMH), part of the U.S. National Institutes of Health
(NIH), by 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, have focused on the antidepressant effects of low dose
ketamine hydrochloride injection (ketamine), an ion-channel blocking NMDA receptor
antagonist, in MDD patients with inadequate responses to multiple
standard antidepressants. These NIMH studies, as well as clinical
research at Yale University and other academic institutions, have
demonstrated robust antidepressant effects in treatment-resistant
MDD patients within twenty-four hours of a single sub-anesthetic
dose of ketamine administered by intravenous (IV) injection.
We believe orally-administered AV-101 may have potential to deliver
ketamine-like antidepressant effects without ketamine’s
psychological and other negative side effects. 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 well-established preclinical models of
depression, AV-101 was shown to induce 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 inhibiting the GlyB site of the NMDA receptor and activating
the AMPA receptor pathway in the brain.
Pursuant to our Cooperative Research and
Development Agreement (CRADA) with the NIMH, the NIMH is funding, and Dr.
Zarate, as Principal Investigator, and his team are conducting, a
small Phase 2 clinical study of AV-101 monotherapy in subjects with
treatment-resistant MDD (the NIMH AV-101 MDD Phase 2
Monotherapy Study). Subject to
the satisfaction of certain requirements described more fully
below, we intend to launch in the first quarter of 2018 a
180-patient Phase 2 multi-center, multi-dose, double blind,
placebo-controlled efficacy and safety study of AV-101 as a new
generation adjunctive treatment of MDD in adult patients with an
inadequate response to standard, FDA-approved antidepressants
(the AV-101 MDD Phase 2 Adjunctive
Treatment Study). Dr. Maurizio Fava, Professor of
Psychiatry at Harvard Medical School and Director, Division of
Clinical Research, Massachusetts General Hospital
(MGH) Research Institute, will be the Principal
Investigator of our AV-101 MDD Phase 2 Adjunctive Treatment
Study. 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 expect to complete this study by the end of
2018, with top line results available in the first quarter of
2019.
VistaStem Therapeutics (VistaStem) is our wholly owned subsidiary focused on
applying human pluripotent stem cell (hPSC) technology, internally and with collaborators,
to discover, 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. To advance potential RM applications of its cardiac
stem cell technology, in December 2016, VistaStem exclusively
sublicensed to BlueRock Therapeutics LP, 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
(the BlueRock
Agreement). In a manner
similar to its exclusive sublicense agreement with BlueRock
Therapeutics, VistaStem may pursue additional RM collaborations or
licensing transactions involving blood, cartilage, and/or liver
cells derived from hPSCs for (A) cell-based therapy, (B) cell
repair therapy, and/or (C) tissue
engineering.
Recent Developments
Spring 2017 Private Placement
Between late-March 2017 and August 2017, we sold to accredited
investors, in a self-placed private placement, units consisting of
an aggregate of 523,572 unregistered shares of our common stock and
warrants to purchase up to an aggregate of 276,071 unregistered
shares of our common stock pursuant to which we received proceeds
of approximately $1.04 million (the Spring 2017 Private
Placement). Included with the
accredited investors that participated in the Spring 2017 Private
Placement was Dr. Jerry Gin, a member of our Board of Directors,
and his spouse, who together purchased an aggregate total of
100,000 shares of unregistered common stock and warrants to
purchase up to 50,000 shares of common stock for an aggregate
purchase price of $200,000.
AV-101 and Major Depressive Disorder
Background
The World Health Organization (WHO) estimates that 300 million people worldwide are
affected by depression. According to the NIH, major depression is
one of the most common mental disorders in the U.S. The NIMH
reports that, in 2014, 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) one in 10 Americans over the age of 12 takes a
standard, FDA-approved antidepressant.
Most standard antidepressants target neurotransmitter reuptake
inhibition – either serotonin (antidepressants known
as SSRIs) or serotonin/norepinephrine (antidepressants
known as SNRIs). Even when effective, these standard depression
medications take many weeks to achieve adequate antidepressant
effects. Nearly two out of every three drug-treated depression
patients do not obtain adequate therapeutic benefit from initial
treatment with a standard antidepressant. Even after treatment with
many different standard antidepressants, nearly one out of every
three drug-treated depression patients still do not achieve
adequate therapeutic benefits from their antidepressant
medication. Such patients with an inadequate response to
standard antidepressants often seek to augment their treatment
regimen by adding an atypical antipsychotic (drugs such as
aripiprazole), despite only modest potential therapeutic benefit
and the significant risk of additional side
effects.
All standard antidepressants have risks of side effects, including,
among others, anxiety, metabolic syndrome, sleep disturbance and
sexual dysfunction. Adjunctive use of atypical antipsychotics to
augment inadequately performing standard antidepressants may
increase the risk of significant side effects, including, tardive
dyskinesia, substantial weight gain, diabetes and heart disease,
while offering only a modest potential increase in therapeutic
benefit.
AV-101
AV-101 is our oral CNS product candidate in Phase 2 development in
the United States, initially focused as a new generation
antidepressant for the adjunctive treatment of MDD patients with an
inadequate response to standard, FDA-approved antidepressants. 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 well-established preclinical models of
depression, AV-101 was shown to induce fast-acting, dose-dependent,
persistent and statistically significant ketamine-like
antidepressant effects following a single treatment, responses
equivalent to those seen with a single sub-anesthetic control dose
of ketamine, without the negative side effects seen with ketamine.
In addition, these studies confirmed that the antidepressant
effects of AV-101 were mediated through both inhibition of the GlyB
site of NMDA receptors and activation of the AMPA receptor pathway
in the brain, a key final common pathway feature of certain new
generation antidepressants such as ketamine and AV-101, each with a
MOA that is fundamentally different from all standard
antidepressants and atypical antipsychotics used adjunctively to
augment them.
We have completed two NIH-funded, randomized, double blind,
placebo-controlled AV-101 Phase 1 safety studies. Currently,
pursuant to our CRADA with the NIMH and Dr. Carlos Zarate, Jr., the
NIMH is funding, and Dr. Zarate, as Principal Investigator, and his
team are conducting, a small NIMH AV-101 MDD Phase 2 Monotherapy
Study. Although we are not involved in conducting this study, we
currently anticipate that the NIMH will complete the NIMH AV-101
MDD Phase 2 Monotherapy Study during the first half of
2018.
We intend to launch a 180-patient AV-101 MDD Phase 2 Study in the
first quarter of 2018, focused on using AV-101 as an adjunctive
treatment of MDD in patients with an inadequate response to
standard, FDA-approved antidepressants. In connection with our
preparation to commence this study and to improve the efficiency of
our existing method of manufacturing AV-101 drug substance for this
and later studies, we, together with our contract manufacturing
organization (CMO), developed a novel process for the chemical
synthesis of the AV-101 drug substance which we believe will
significantly reduce the current and future cost of manufacturing
AV-101 drug substance and improve the yield of AV-101 drug
substance manufactured. While developing this new manufacturing
process, our CMO produced a batch of AV-101 drug substance that
contained impurities in excess of regulatory guidelines which,
although technically applicable only to New Drug Applications, are
applied as common practice and industry standard to development
stage programs. Consequently, the FDA placed a clinical hold on the
launch of our AV-101 MDD Phase 2 Adjunctive Treatment Study until
such time as we are able to demonstrate that impurities in the
AV-101 drug substance manufactured with our new manufacturing
process are within applicable regulatory guidelines. As a
result of further refinement of our new manufacturing process, we
have and are able to produce AV-101 drug substance that meets the
applicable regulatory specifications. Accordingly, we believe our
current AV-101 drug substance, produced using our new manufacturing
method, meets all applicable regulatory guidelines.
The FDA also requested reproductive
toxicology studies that are routinely conducted later in stages of
clinical development. Available toxicology studies for AV-101 do
not suggest any reproductive organ involvement, however we have
implemented additional contraceptive measures in the revised study
protocol that will remain in effect until reproductive toxicology
studies are completed. Although not a basis for the current
clinical hold, we plan to confirm with FDA that the recently
implemented contraceptive measures address concerns for the current
stage of development. We believe the data from our new
manufacturing process, together with other requested revisions to
our IND application, will satisfy the FDA’s concerns and we
expect to receive FDA approval in the fourth quarter of 2017 to
proceed with the AV-101 MDD Phase 2 Adjunctive Treatment Study.
However, no assurance can be
given that the FDA will lift the clinical hold and permit us to
proceed with the AV-101 MDD Phase 2 Adjunctive Treatment Study or
as to the timing of any such
action.
We believe preclinical studies and Phase 1 safety studies support
our hypothesis that AV-101 may also have potential to treat
multiple additional CNS disorders and diseases beyond MDD,
including epilepsy, neuropathic pain, Huntington’s disease,
L-DOPA-induced dyskinesia associated with Parkinson’s
disease, and other CNS indications where modulation of the NMDA
receptor, activation of AMPA pathways and/or key active metabolites
of AV-101 may achieve therapeutic benefit. We are beginning to plan
additional Phase 2 clinical studies of AV-101 to further evaluate
its therapeutic potential beyond MDD.
CardioSafe 3D™; NCE Drug Rescue and Regenerative
Medicine
VistaStem Therapeutics is our wholly owned subsidiary focused on
applying hPSC technology to discover, rescue, develop and
commercialize proprietary small molecule NCEs for CNS and other
diseases, as well as potential cellular therapies involving stem
cell-derived blood, cartilage, heart and liver
cells.CardioSafe 3D™ is our
customized in vitro cardiac bioassay system capable of
predicting potential human heart toxicity of small molecule
NCEs in vitro, long before they are ever tested in animal and
human studies. Potential commercial applications of our stem cell
technology platform involve using CardioSafe 3D internally for NCE drug discovery and
drug rescue to expand our proprietary drug candidate pipeline. Drug
rescue involves leveraging substantial prior research and
development investments by pharmaceutical companies and others
related to public domain NCE programs terminated before FDA
approval due to heart toxicity risks and RM and cellular therapies.
To advance potential RM applications of its cardiac stem cell
technology, in December 2016, VistaStem exclusively sublicensed to
BlueRock Therapeutics LP, a next generation regenerative medicine
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 the BlueRock Agreement, VistaStem may also pursue
additional potential RM applications using blood, cartilage, and/or
liver cells derived from hPSCs for (A) cell-based therapy
(injection of stem cell-derived mature organ-specific cells
obtained through directed differentiation), (B) cell repair therapy
(induction of regeneration by biologically active molecules
administered alone or produced by infused genetically engineered
cells), or (C) tissue engineering (transplantation
of in
vitro grown complex
tissues) using hPSC-derived blood, bone, cartilage, and/or liver
cells.
Corporate Information
VistaGen Therapeutics, Inc., a Nevada corporation, is the parent of
VistaGen Therapeutics, Inc. (dba VistaStem Therapeutics, Inc.), a
wholly-owned California corporation founded in 1998. Our principal
executive offices are located at 343 Allerton Avenue, South San
Francisco, California 94080, and our telephone number is (650)
577-3600. Our website address is www.vistagen.com.
The information contained on our website is not part of this
prospectus. We have included our website address as a factual
reference and do not intend it to be an active link to our
website.
THE OFFERING
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Issuer
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VistaGen Therapeutics, Inc.
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Common
Stock Offered by Us
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1,371,430 shares of common stock.
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Common
Stock to be Outstanding Immediately After this
Offering
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10,751,474 shares.
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Warrants
Offered by Us
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Warrants to purchase up to 1,892,572 shares of common stock,
consisting of 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. Each share of our common stock is
being sold together with 1.0128 Series A1 Warrants, each whole
Series A1 Warrant to purchase one share of our common stock, and
0.3672 of a Series A2 Warrant, each whole Series A2 Warrant to
purchase one share of our common stock. Each of the Warrants will
have an exercise price of $1.82 per share. The Series A1 Warrants
will be exercisable for a five-year period commencing on March 7,
2018. Each Series A2 Warrant will be exercisable for a five-year
period commencing on the date of issuance.
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This prospectus supplement also relates to the offering of the
shares of common stock issuable upon exercise of the Warrants. The
exercise price of the Warrants and the number of shares into which
the Warrants may be exercised are subject to adjustment in certain
circumstances. See “Description of Securities we
are Offering” on page
S-44.
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Use
of Proceeds
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We currently intend to use the net proceeds from the sale of the
securities offered by this prospectus supplement for general
corporate purposes, including research and development related to
preparations for our planned AV-101 MDD Phase 2 Adjunctive
Treatment Study, and working capital. See
“Use
of Proceeds” on page
S-42.
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Risk
Factors
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Investing in our common shares and Warrants involves a high degree
of risk. For a discussion of factors that you should consider
before buying our securities, see the information under
“Risk
Factors” in this
prospectus supplement and under similar headings in the documents
incorporated by reference into this prospectus
supplement.
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NASDAQ
Capital Market symbol
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“VTGN.”
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There is no established trading market for the Warrants and we do
not expect a market to develop. In addition, we do not intend to
apply for the listing of the Warrants on any national securities
exchange or other trading market. Without an active trading market,
the liquidity of the Warrants will be limited.
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The
number of shares of our common stock that will be outstanding
immediately after the offering is based on 9,380,044 shares
outstanding as of August 31, 2017. Unless we specifically state
otherwise, the share information in this prospectus supplement
excludes:
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2,509,871 shares of common stock reserved for
issuance upon exercise of outstanding stock options under our 1999
Stock Incentive Plan and our Amended and Restated 2016 Stock
Incentive Plan, with a weighted average exercise price of $3.74 per
share;
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329,662 shares of common stock reserved for future
issuance in connection with future grants under our Amended and
Restated 2016 Stock Incentive Plan;
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4,825,078 shares of common stock that have been
reserved for issuance upon exercise of outstanding warrants, with a
weighted average exercise price of $6.17 per
share;
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750,000 shares of common stock reserved for
issuance upon conversion of 500,000 shares our Series A
Preferred;
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1,160,240
shares of common stock reserved for issuance upon conversion of
1,160,240 shares of our Series B Preferred and 663,460 shares of
common stock for issuance as payment of accrued dividends on
outstanding shares of Series Preferred;
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2,318,012
shares of common stock reserved for issuance upon conversion of
2,318,012 shares of our Series C Preferred; and
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1,892,572
shares of common stock issuable upon the exercise of the Warrants
offered hereby.
RISK FACTORS
An
investment in our securities involves a high degree of risk. You
should consider the risks, uncertainties and assumptions discussed
below, together with all of the other information contained or
incorporated by reference in this prospectus supplement and the
accompanying prospectus, including our Annual Report on Form 10-K
for the fiscal year ended March 31, 2017, as well as subsequently
filed Quarterly Reports on Form 10-Q with the SEC.
It is
not possible to predict or identify all such risks. Consequently,
we could also be affected by additional factors that are not
presently known to us or that we currently consider to be
immaterial to our operations. The occurrence of any
of these known or unknown risks might cause you to lose all or part
of your investment in the offered securities.
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
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
produce, develop and commercialize NCEs from our drug rescue
programs. AV-101 will require substantial additional non-clinical
and clinical development, 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 non-clinical development, all phases of
clinical development, and regulatory approval before it may be
commercialized. The non-clinical 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 non-clinical studies and
clinical trials that the product candidate is safe and effective
for use in each target indication. Drug development is a long,
expensive and uncertain process, and delay or failure can occur at
any stage of any of our non-clinical or clinical studies. This
process can take many years and may also include post-marketing
studies and surveillance, which will require the expenditure of
substantial resources beyond the proceeds we have raised to date.
Of the large number of drugs in development in the United States,
only a small percentage will successfully complete the FDA
regulatory approval process and will be commercialized.
Accordingly, even if we are able to obtain the requisite financing
to continue to fund our non-clinical and clinical studies, we
cannot assure you that AV-101, any drug rescue NCE, 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 a New Drug Application
(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 the planned AV-101 MDD Phase 2
Adjunctive Treatment Study 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 toxicity
studies, additional non-clinical and certain small clinical studies
before submitting an NDA for AV-101. The results of all of these
studies are not known until after the studies are
concluded.
Obtaining FDA approval of an NDA is a complex, lengthy, expensive
and uncertain process, and the FDA may delay, limit or deny
approval of AV-101 or any of our product candidates 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 Risk
Evaluation and Mitigation Strategy (REMS) as a condition of approval or
post-approval;
●
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 current Good
Manufacturing Practices (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, including drug rescue NCEs. 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 intend to seek a Fast Track designation from the FDA for AV-101,
initially for adjunctive treatment of MDD patients with an
inadequate response to standard antidepressants. Even if the FDA
approves Fast Track designation for AV-101 for this indication, it
may not actually lead to a faster development or regulatory review
or approval process.
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.
We intend to seek FDA Fast Track designation for AV-101, initially
for adjunctive treatment of MDD patients with an inadequate
response to standard antidepressants, and we may do so 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 are eligible for this designation, we cannot be sure
that the review or approval will compare to conventional FDA
procedures. Even if granted, the FDA may withdraw Fast Track
designation if it believes that the designation is no longer
supported by data from our clinical development
programs.
The number of patients suffering from MDD has not been established
with precision. If the actual number of patients with MDD is
smaller than we anticipate, we or our collaborators may encounter
difficulties in enrolling patients in AV-101 clinical trials,
including the NIMH AV-101 MDD Phase 2 Monotherapy Study and our
planned AV-101 MDD Phase 2 Adjunctive Treatment Study, thereby
delaying completion such studies or preventing additional clinical
development. Further, if AV-101 is approved for
adjunctive treatment of MDD patients with an inadequate response to
standard antidepressants, and the market for this indication is
smaller than we anticipate, our ability to achieve profitability
could be limited.
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 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 fails to produce positive results
in the NIMH AV-101 MDD Phase 2 Monotherapy Study, 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 non-clinical or clinical studies
of our product candidates.
If serious adverse events or other undesirable side effects are
identified during the use of AV-101 in clinical trials, it may
adversely affect our development of AV-101 for MDD and other CNS
indications.
AV-101 as a monotherapy is currently being tested by the NIMH in an
NIMH-investigator sponsored Phase 2 clinical trial for the
treatment of MDD 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 unexpected characteristics of AV-101 are observed in
investigator sponsored clinical trials of AV-101 or our clinical
trials, it may adversely affect or delay our clinical development
of AV-101, and the occurrence of these events would have a material
adverse effect on our business.
Failures or delays in the commencement or completion of our planned
clinical trials and non-clinical studies of 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, the NIMH is conducting and funding the NIMH AV-101
MDD Phase2 Monotherapy Study. We will need to complete the planned
AV-101 MDD Phase 2 Adjunctive Treatment Study, at least two
additional large Phase 2b/3 clinical trials, additional toxicity
and non-clinical studies and certain smaller clinical studies prior
to the submission of an NDA for AV-101 as a new generation
adjunctive treatment for MDD. Successful completion of our clinical
trials is a prerequisite to submitting an NDA to the FDA and,
consequently, the ultimate approval and commercial marketing of
AV-101 for MDD and any other product candidates we may develop.
Except as disclosed herein, we do not know whether the NIMH AV-101
MDD Phase 2 Monotherapy Study, the AV-101 MDD Phase 2 Adjunctive
Treatment Study or any of our future-planned non-clinical and
clinical trials will be completed on schedule, if at all, as the
commencement and completion of non-clinical and clinical trials can
be delayed or prevented for a number of reasons, including, among
others:
●
the
FDA may deny permission to proceed with our planned clinical trials
or any other clinical trials we may initiate, or may place a
planned or ongoing clinical trial on hold, including the clinical
hold on the launch of our planned AV-101 MDD Phase 2 Adjunctive
Treatment Study;
●
delays
in filing or receiving approvals of additional INDs that may be
required;
●
negative
results from our ongoing non-clinical studies;
●
delays
in reaching or failing to reach agreement on acceptable terms with
prospective CROs and clinical trial sites, the terms of which can
be subject to extensive negotiation and may vary significantly
among different CROs and trial sites;
●
inadequate quantity or quality of a product candidate or other
materials necessary to conduct non-clinical or clinical trials,
including delays in the manufacturing of sufficient supply or
finished drug product resulting from our new manufacturing process
for AV-101;
●
difficulties obtaining Institutional Review Board
(IRB) approval to conduct a clinical trial at a
prospective 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 the clinical trial, the nature of the 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 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 non-clinical 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 non-clinical 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 trials, 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 our 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 our
ongoing non-clinical 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, such as the clinical hold currently imposed by the FDA;
and
●
lack
of adequate funding to continue clinical trials.
Changes in regulatory requirements, FDA guidance or unanticipated
events during our non-clinical studies and clinical trials of our
product candidates may occur, which may result in changes to
non-clinical studies and clinical trial protocols or additional
non-clinical 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 non-clinical studies and clinical trials may
force us to amend non-clinical studies and clinical trial protocols
or the FDA may impose additional non-clinical 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 non-clinical 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
non-clinical studies or clinical trials, or if we are required to
conduct additional non-clinical studies or clinical trials, the
commercial prospects for our 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 non-clinical and clinical trials of AV-101 and any other
product candidates. If these third parties do not successfully
carry out their contractual duties or meet expected deadlines,
completion of non-clinical and clinical trials and development of
AV-101 and 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 non-clinical and clinical trials completely on our own. We
rely on our strategic relationships with various medical
institutions, non-clinical and clinical investigators, contract
laboratories and other third parties, such as contract research and
development organizations (CROs), to conduct non-clinical 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 non-clinical and clinical
trials for our product candidates and control only certain aspects
of their activities. As a result, we have less direct control over
the conduct, timing and completion of these non-clinical and
clinical trials and the management of data developed through
non-clinical and clinical trials than would be the case if we were
relying entirely upon our own staff. 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 non-clinical 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 non-clinical studies and clinical trials is
conducted in accordance with the applicable protocol, legal,
regulatory and scientific requirements and standards, and our
reliance on CROs or the NIH does not relieve us of our regulatory
responsibilities. We and our CROs and the NIMH are required to
comply with regulations and guidelines, including current 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 regulations 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,
we plan to have CROs, and in the case of the NIMH AV-101 MDD Phase
2 Monotherapy Study, the NIMH, conduct the AV-101 Phase 2 and Phase
3 clinical trials. As a result, many important aspects of our drug
development programs are outside of our direct control. In
addition, the CROs or the NIMH, as the case may be, may not perform
all of their obligations under arrangements with us or in
compliance with regulatory requirements, but we remain responsible
and are 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 our
clinical trials. If the NIMH or CROs do not perform clinical trials
in a satisfactory manner, breach their obligations to us or fail to
comply with regulatory requirements, the development and
commercialization of AV-101 and other product candidates may be
delayed or our development program materially and irreversibly
harmed. We cannot control the amount and timing of resources these
CROs or the NIMH devote to our program or our clinical products. If
we are unable to rely on non-clinical and clinical data collected
by our CROs or the NIMH, 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 any of our relationships with these third-party CROs or the NIMH
terminate, we may not be able to enter into arrangements with
alternative CROs or collaborators. If CROs or 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 the failure to adhere to our clinical protocols,
regulatory requirements or for other reasons, any clinical trials
that such CROs or the NIMH 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 and prepare our
clinical supplies of AV-101 and other product candidates, and we
intend to rely on third parties to produce non-clinical, clinical
and commercial supplies of AV-101 and any future product
candidate.
We do not currently have, nor do we plan to acquire, the
infrastructure or capability to internally manufacture our drug
supply of AV-101 or any other product candidates for use in the
conduct of our non-clinical studies and clinical trials, and we
lack the internal resources and the capability to manufacture any
product candidates on a research, development or commercial
scale. The facilities used by our contract manufacturers
to manufacture the active pharmaceutical ingredient and final drug
product must complete a pre-approval inspection by the FDA and
other comparable foreign regulatory agencies to assess compliance
with applicable requirements, including cGMPs, after we submit our
NDA or relevant foreign regulatory submission to the applicable
regulatory agency.
We
do not directly control the manufacturing process of, and are
completely dependent on, our contract manufacturers to comply with
cGMPs for manufacture of both active drug substances and finished
drug products. If our contract manufacturers cannot successfully
manufacture material that conforms to our specifications and the
strict regulatory requirements of the FDA or applicable foreign
regulatory agencies, they will 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 the
clinical hold disclosed above. In addition, we have no direct
control over our contract manufacturers’ ability to maintain
adequate quality control, quality assurance and qualified
personnel. Furthermore, all of our contract manufacturers are
engaged with other companies to supply and/or manufacture materials
or products for such other companies, which exposes our third-party
contract manufacturers 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 contract
manufacturers’ facilities generally or affect the timing of
our clinical trials, including the imposition of clinical hold
disclosed above. If the FDA or an applicable foreign regulatory
agency determines now or in the future that these facilities for
the manufacture of our product candidates 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 contract
manufacturers 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.
We do not yet have long-term supply agreements in place with our
contract manufacturers and each batch of our product candidates are
individually contracted under a quality and supply agreement. If we
engage new contract manufacturers, such contractors must complete
an inspection by the FDA and other applicable foreign regulatory
agencies. We plan to continue to rely upon contract manufacturers
and, potentially, collaboration partners, to manufacture research,
development and commercial quantities of AV-101 and other product
candidates, if approved. Our current scale of manufacturing for
AV-101 is adequate to support our currently planned needs for
additional non-clinical studies and clinical trials.
Recently enacted and future legislation may increase the difficulty
and cost for us to obtain marketing approval for and commercialize
AV-101 and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have
been, and we expect there will continue to be, a number of
legislative and regulatory changes and proposed changes regarding
the healthcare system, including the ACA, that could, among other
things, prevent or delay marketing approval of AV-101, restrict or
regulate post-approval activities, and affect our ability to
profitably sell any products for which we obtain marketing
approval.
In March 2010, the ACA was enacted to broaden access to health
insurance, reduce or constrain the growth of healthcare spending,
enhance remedies against fraud and abuse, add new transparency
requirements for health care and health insurance industries,
impose new taxes and fees on the health industry, and impose
additional health policy reforms. The law has continued the
downward pressure on pharmaceutical pricing, especially under the
Medicare program, and increased the industry’s regulatory
burdens and operating costs. We cannot predict the full impact of
the ACA on pharmaceutical companies, as many of the reforms require
the promulgation of detailed regulations implementing the statutory
provisions, some of which have not yet fully occurred.
Further, there have been judicial and Congressional challenges to
certain aspects of the ACA, and we expect there will be additional
challenges and amendments to the ACA in the future. In January
2017, the President of the United States signed an Executive Order
directing federal agencies with authorities and responsibilities
under the ACA to waive, defer, grant exemptions from, or delay the
implementation of any provision of the ACA that would impose a
fiscal or regulatory burden on states, individuals, healthcare
providers, health insurers, or manufacturers of pharmaceuticals or
medical devices. In May 2017, the United States House of
Representatives passed legislation known as the American Health
Care Act, which, if enacted, would amend or repeal significant
portions of the ACA. The United States Senate could adopt the
American Health Care Act as passed by the United States House of
Representatives or other legislation to amend or replace elements
of the ACA. Thus, it is uncertain when or if the American Health
Care Act will become law. We continue to evaluate the effect that
the ACA and its possible repeal and replacement has on our
business.
Other legislative changes have been proposed and adopted since the
ACA was enacted. For example, in August 2011, the President of the
United States signed into law the Budget Control Act of 2011,
which, among other things, created the Joint Select Committee on
Deficit Reduction to recommend to Congress proposals in spending
reductions. The Joint Select Committee did not achieve a targeted
deficit reduction of at least $1.2 trillion for the years 2013
through 2021, triggering the legislation’s automatic
reduction to several government programs. This included further
reductions to Medicare payments to providers of 2% per fiscal year,
which went into effect in April 2013 and, due to subsequent
legislative amendments to the statute, will stay in effect through
2025 unless additional Congressional action is taken. Additionally,
in January 2013, the American Taxpayer Relief Act of 2012 was
signed into law, which, among other things, reduced Medicare
payments to several types of providers and increased the statute of
limitations period in which the government may recover overpayments
to providers from three to five years. Further, there have been
several recent United States Congressional inquiries and proposed
federal and state legislation designed to, among other things,
bring more transparency to drug pricing, review the relationship
between pricing and manufacturer patient programs, reduce the
out-of-pocket cost of prescription drugs, and reform government
program reimbursement methodologies for drugs.
Moreover, the Drug Supply Chain Security Act, which was enacted in
2012 as part of the Food and Drug Administration Safety and
Innovation Act, imposes new obligations on manufacturers of
pharmaceutical products related to product tracking and tracing.
Legislative and regulatory proposals have been made to expand
post-approval requirements and restrict sales and promotional
activities for pharmaceutical products. We are not sure whether
additional legislative changes will be enacted, or whether the
current regulations, guidance or interpretations will be changed,
or what the impact of such changes on our business, if any, may be.
In addition, increased scrutiny by the United States Congress of
the FDA’s approval process may significantly delay or prevent
marketing approval, as well as subject us to more stringent product
labeling and post-marketing testing and other
requirements.
We expect that additional state and federal healthcare reform
measures will be adopted in the future, any of which could limit
the amounts that federal and state governments will pay for
healthcare products and services, which could result in reduced
demand for our product candidates or additional pricing
pressures.
Even if we receive marketing approval for our product candidates in
the United States, we may never receive regulatory approval to
market our product candidates 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 our product
candidates. In order to market any product outside of the United
States, however, 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 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 an infrastructure for the sale, marketing
and distribution of pharmaceutical products, nor do we intend to
create such capabilities. Therefore, in order 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 non-clinical 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 pharmaceuticals 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 AV-101. However, new antidepressant products with
other mechanisms of action or products approved for other
indications, including the 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 sometimes used before or instead of standard
antidepressant medications to treat patients with
MDD.
In the field of new generation, orally available, adjunctive
treatments of adult MDD patients with an inadequate response to
standard antidepressants, we believe our principal competitor is
Alkermes’ orally available drug candidate in Phase 3
development, ALKS-5461.
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, epilepsy, neuropathic pain, dyskinesia associated
with L-DOPA therapy for Parkinson’s disease and other
neurological conditions and diseases, including, but not limited
to, Abbott Laboratories, Acadia, Allergan, Alkermes, Astra Zeneca,
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 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 depression, 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,
including anticipated activities to be conducted by our sales team,
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 is found not to be
in 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 marketing approval for AV-101
as an adjunctive treatment of MDD, physicians may nevertheless
prescribe AV-101 to their patients in a manner that is inconsistent
with the approved label. 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 promotion and has enjoined
several companies from engaging in off-label promotion. The FDA has
also requested that companies enter into consent decrees or
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, including AV-101. Even if we have obtained FDA
Orphan Drug designation for AV-101 of other product candidates,
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, including AV-101. Even
if we obtain Orphan Drug designation from the FDA for AV-101 or any
other product candidates, there are limitations to the exclusivity
afforded by such designation. In the United States, 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 drug, biological and/or regenerative medicine
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 strategic
collaborators:
●
produce
product candidates;
●
develop
and obtain required regulatory approvals for commercialization of
product candidates we produce;
●
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 products; 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 and 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 or drug
rescue NCEs, or that, if produced, AV-101 or any drug rescue NCE
will be successfully commercialized.
Research programs designed to identify and produce drug rescue NCEs
require substantial technical, financial and human resources,
whether or not any 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 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 in 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, 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
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 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.
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 strategic 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 out-license them to strategic
partners, the resources such partners choose to dedicate to
development and commercialization of any drug rescue NCEs they
license from us.
Even if we do produce proprietary drug rescue NCEs, we can give no
assurance that we will be able to develop and commercialize them as
a marketable drug, on our own or in collaboration with others.
Before we generate any revenues from AV-101 and/or additional drug
rescue NCEs we or our potential collaborators must complete
preclinical and clinical developments, submit clinical and
manufacturing data to the FDA, qualify a third party contract
manufacturer, receive regulatory approval in one or more
jurisdictions, satisfy the FDA that our contract manufacturer 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.
Our success 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 non-clinical RM programs involving blood, bone,
cartilage, and/or liver cells. Although we and our collaborators
have developed proprietary protocols for the production of 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 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 in order 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 in which we operate. These
laws and regulations can be costly to comply with and 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 $10.3 million and
$47.2 million, which includes $26.7 million of non-cash expense
related to the extinguishment of essentially all of our outstanding
promissory notes and certain other indebtedness, during the fiscal
years ended March 31, 2017 and 2016, respectively. We incurred a
net loss of approximately $2.3 million in the quarter ended June
30, 2017 and, as of that date, we had an accumulated deficit of
approximately $144.3 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 non-clinical 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, not including the fair
market value of the ongoing NIMH AV-101 MDD Phase 2 Monotherapy
Study 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 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 non-clinical 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;
●
commercialize
our product candidates, if approved, by developing a sales force or
entering into collaborations with third parties; and
●
achieve
market acceptance of our product candidates in the medical
community and with third-party payors.
Unless we enter into a development and commercialization
collaboration or partnership agreement, we expect to incur
significant sales and marketing costs as we prepare to
commercialize AV-101 or other product candidates. Even if we
initiate and successfully complete pivotal clinical trials of
AV-101 or other product candidates, and AV-101 or other product
candidates are approved for commercial sale, and despite expending
these costs, AV-101 or other 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, 2017 as well as the unaudited condensed consolidated
financial statements for the period ended June 30, 2017 included
elsewhere in this 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 advancing AV-101 through preclinical
development and Phase 1 clinical safety studies, and
developing CardioSafe 3D and our cardiac stem cell technology for
drug rescue and potential regenerative medicine applications, and
we will continue to expend substantial resources for the
foreseeable future developing and commercializing AV-101 for
multiple CNS indications, and, potentially, developing drug rescue
NCEs and RM therapies, on our own or in collaborations similar to
the BlueRock Agreement. These expenditures will include costs
associated with general and administrative costs, facilities costs,
research and development, acquiring new technologies, manufacturing
product candidates, conducting preclinical experiments and clinical
trials and obtaining regulatory approvals, as well as
commercializing any products approved for sale.
At June 30, 2017, our existing cash and cash equivalents were not
sufficient to fund our current operations for the next 12 months or
to complete our proposed AV-101 MDD Phase 2 Adjunctive Treatment
Study. 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 AV-101, a drug rescue NCE,
and/or another drug candidate unrelated to AV-101 to third-parties,
(ii) enter into 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
compounds.
As the outcome of our AV-101 and NCE drug rescue activities 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 are considering
a range of potential sources of funding, 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 2017 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,
including AV-101 and drug rescue NCEs;
●
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 arrangements and the financial terms of such
agreements;
●
market
acceptance of our products;
●
the
effect of competing technological and market
developments;
●
our
ability to obtain government funding for our 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 acquire or invest in businesses, products and
technologies, although we currently have no commitments or
agreements relating to any of these types of
transactions.
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, and the terms of
any 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 or exchange 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 candidate
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 (See
Item 9A. Controls and
Procedures contained in
our Annual Report on Form 10-K for the year ended June 30, 2017,
filed with the SEC on June 29,
2017.).
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 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 2017 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 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.
We currently have 30.0 million shares of common stock authorized
for issuance. Based on the current number of shares of our common
stock: (i) outstanding, (ii) reserved for conversion or exchange of
our various series of outstanding preferred stock, including for
payment of accrued dividends on our outstanding Series B Preferred,
(iii) reserved for the exercise of outstanding warrants, and (iv)
reserved for the exercise of options granted or available for grant
pursuant to our equity incentive plans, at June 30, 2017, we have
approximately 8.1 million shares of common stock available for
future financing or other activities. We anticipate seeking
stockholder approval to amend our Articles of Incorporation to
increase the number of shares of common stock we are authorized to
issue in order to achieve our near-term or longer-term financing
objectives.
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, 2017, we had federal and state net operating
loss carryforwards of $77.1 million and $67.6 million,
respectively, which begin to expire in fiscal
2018. 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 AV-101, drug rescue NCEs, other potential
product candidates and other commercial applications of our stem
cell technology.
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 and Chief Financial Officer, as well as 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
AV-101, drug rescue NCEs, other product candidates, and other
applications of our stem cell technology, including our production
and assessment of potential drug recuse NCEs 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 as we 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 diverse range of strategic consultants
and advisors, including manufacturing, scientific and clinical
development, and regulatory advisors, to assist us in designing and
implementing our research and development and regulatory strategies
and plans, including our AV-101 development and drug rescue
strategies and plans. 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 AV-101 for MDD and other
CNS-related conditions, as well as stem cell technology-related
drug rescue and RM programs, we will 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.
If we develop AV-101, drug rescue NCEs, other product candidates,
or regenerative medicine 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 products 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;
●
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
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.
Furthermore, these laws, regulations and requirements require us to
observe greater corporate governance practices than we have
employed in the past, including, but not limited to maintaining a
sufficient number of independent directors, increased frequency of
board meetings, and holding annual stockholder meetings. 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 internal computer systems, or those of our third-party CROs or
other contractors or consultants, may fail or suffer security
breaches, which could result in a material disruption of our
product candidates’ development programs.
Despite the implementation of security measures, our internal
computer systems and those of our third-party CROs and other
contractors and consultants are vulnerable to damage from computer
viruses, unauthorized access, natural disasters, terrorism, war and
telecommunication and electrical failures. 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 products, or form strategic alliances,
in the future, and we may not realize the benefits of such
acquisitions.
We may acquire additional businesses or products, 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
products resulting from a strategic alliance 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, 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 are 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 patent applications related to AV-101
and we own and have licensed patents and patent applications
related to human pluripotent stem cell technology.
Although we have an issued patent relating to AV-101 in the
European Union, we cannot yet provide any assurances that any of
our 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 AV-101 or other 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 issued to us 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.
We may be involved in lawsuits to protect or enforce our patents or
the patents of our licensors, which 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.
Interference proceedings provoked by third parties or brought by us
may be necessary to determine the priority of inventions with
respect to our patents or patent applications or those of our
licensors. An unfavorable outcome could require us to cease using
the related technology 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 a license on commercially
reasonable terms. 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.
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, if and when issued,
covering one of our product candidates, 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.
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. See
“Business —Intellectual
Property” herein for a
description of our license agreements, which includes a description
of the termination provisions of these
agreements.
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 with regard to 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
The limited public market for our securities may adversely affect
an investor’s ability to liquidate an investment in the
Company.
Our common stock is currently quoted on The NASDAQ Capital Market,
however, there is presently limited trading activity. We
can give no assurance that an active market will develop, or if
developed, that it will be sustained. If an investor
acquires shares of our common stock, the investor may not be able
to liquidate the shares should there be a need or desire to do
so.
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 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 non-clinical 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;
●
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 these 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 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 operating performance.
In certain recent situations in which the market price of a stock
has been volatile, holders of that stock have instituted securities
class action litigation against such 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 significant 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.
Our principal institutional stockholders may continue to have
substantial control over us and could limit your ability to
influence the outcome of key transactions, including changes in
control.
Certain of our current institutional stockholders own a substantial
portion of our outstanding capital stock, including our common
stock, Series A Preferred, Series B Preferred, and Series C
Preferred, all of which preferred stock is convertible into a
substantial number of shares of common
stock. Accordingly, institutional stockholders may exert
significant 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 us, even if such a change of control would benefit
our other stockholders. The significant concentration of stock
ownership may adversely affect the trading price of our common
stock due to investors’ perception that conflicts of interest
may exist or arise. Furthermore, the interests of our principal
institutional stockholders may not always coincide with your
interests or the interests of other stockholders may act in a
manner that advances its best interests and not necessarily those
of other stockholders, including seeking a premium value for its
common stock, which might affect the prevailing market price for
our common stock.
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 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 of Directors has authorized the
issuance of (i) 500,000 shares of Series A Preferred, all of which
shares are issued and outstanding at June 30, 2017; (ii) 4.0
million shares of Series B 10% Convertible Preferred stock, of
which approximately 1.2 million shares remain issued and
outstanding at June 30, 2017; and (iii) 3.0 million shares of
Series C Convertible Preferred Stock, of which approximately 2.3
million shares are issued and outstanding at June 30, 2017. Our
Board of Directors 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.
Since becoming a public company by means of a reverse merger in
2011, we have been 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 money 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.
Risks Related to this Offering
Our management
team may invest or spend the proceeds of this offering in ways with
which you may not agree or in ways which may not yield a
significant return.
Our management will have broad discretion over the use of proceeds
from this offering. We currently intend to use the net proceeds
from the sale of securities offered by this prospectus
for
general corporate purposes, including research and development,
working capital and capital expenditures. We may use a portion
of the net proceeds to fund production of, and nonclinical and
clinical studies related to Phase 2 and Phase 3 development of,
AV-101 and other drug candidates. We may also use the net proceeds
from the sale of the securities under this prospectus to
in-license, acquire or invest in complementary businesses,
technologies, products or assets. However, our management will have broad
discretion in the application of the net proceeds from this
offering and could spend the proceeds in ways that do not improve
our results of operations or enhance the value of our common stock.
The failure by management to apply these funds effectively could
result in financial losses that could have a material adverse
effect on our business, cause the price of our common stock to
decline and delay the development of our product
candidates.
Purchasers in this offering will experience immediate and
substantial dilution in the book value of their
investment.
Because the combined public offering
price per share and related Warrants is substantially higher than
the book value per share of our common stock, you will suffer
substantial dilution in the net tangible book value of the common
stock you purchase in this offering. After giving effect to the
sale by us of 1,371,430 shares of our common stock and Warrants to
purchase up to an aggregate total of 1,892,572 shares of common
stock in this offering at a combined public offering price of $1.75
per share and related Warrants, and after deducting the
underwriting discount and estimated offering expenses payable by us
and attributing no value to the Warrants sold in this offering, you
will suffer immediate and substantial dilution of $1.62 per share
in the net tangible book value of the common stock you purchase in
this offering. To the extent
outstanding options, warrants or other derivative securities are
ultimately exercised or converted, or if we issue restricted stock
to our employees under our equity incentive plans, there will be
further dilution to investors who purchase shares in this offering.
In addition, if we issue additional equity securities or derivative
securities, investors purchasing shares in this offering will
experience additional dilution. For a further description of the
dilution that you will experience immediately after this offering,
see “Dilution”
on page S-43.
Sales of a
substantial number of shares of our common stock, or the perception
that such sales may occur, may adversely impact the price of our
common stock.
There is no public
market for the Warrants being offered by this prospectus supplement
and the accompanying prospectus, and we do not anticipate such a
market ever developing in the future.
There is no established public trading market for the Warrants
being offered by this prospectus supplement and the accompanying
prospectus and we do not intend to have the Warrants listed on a
national securities exchange or any other recognized trading system
in the future. Without an active market, the liquidity of any
Warrants sold by means of this prospectus supplement and the
accompanying prospectus will be limited.
The Warrants being
offered by means of this prospectus supplement and the accompanying
prospectus may not have any value.
The
Warrants offered by us in this offering do not confer any rights of
ownership of shares of common stock on its holders, such as voting
rights or the right to receive dividends, but only represent the
right to acquire shares of common stock at a fixed price for a
limited period of time. In the event that
the market price of our common stock does not exceed the exercise
price of the Warrants sold in this offering during the period when
the Warrants are exercisable, the Warrants may not have any
value.
This prospectus supplement contains forward-looking statements that
involve substantial risks and uncertainties. All statements
contained in this prospectus supplement and the accompanying
prospectus, other than statements of historical facts, are
forward-looking statements including statements regarding our
strategy, future operations, future financial position, future
revenue, projected costs, prospects, plans, objectives of
management and expected market growth. 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:
●
the
availability of capital to satisfy our working capital
requirements;
●
the
accuracy of our estimates regarding expenses, future revenues and
capital requirements;
●
our plans to develop and commercialize our lead product candidate,
AV-101, initially as an adjunctive treatment for MDD in patients
with an inadequate response to standard, FDA-approved
antidepressants, and subsequently as a treatment for additional CNS
diseases and disorders;
●
our
ability to initiate and complete our clinical trials and to advance
our product candidates into additional clinical trials, including
pivotal clinical trials, and successfully complete such clinical
trials;
●
regulatory
developments in the U.S. and foreign countries;
●
the
performance of the U.S. National Institute of Mental Health, our
third-party contractors involved with the manufacturer and
production of our drug candidates for nonclinical and clinical
development activities, contract research organizations and other
third-party nonclinical and clinical development collaborators and
regulatory service providers;
●
our
ability to obtain and maintain intellectual property protection for
our core assets;
●
\the
size of the potential markets for our product candidates and our
ability to serve those markets;
●
the
rate and degree of market acceptance of our product candidates for
any indication once approved;
●
the
success of competing products and product candidates in development
by others that are or become available for the indications that we
are pursuing;
●
the
loss of key scientific, clinical and nonclinical development,
and/or management personnel, internally or from one of our
third-party collaborators; and
●
other risks and uncertainties, including
those described under
Item 1A, “Risk
Factors,” in our Annual
Report on Form 10-K for the fiscal year ended March 31, 2017 and
subsequent Quarterly Reports on Form 10-Q, which risk factors are
incorporated herein by reference.
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
prospectus supplement, as well as certain information incorporated
by reference into this prospectus supplement and the accompanying
prospectus, 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 prospectus supplement and the accompanying
prospectus 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.
USE OF PROCEEDS
We estimate that the net proceeds to us from this offering
will be approximately $2.0 million, after deducting the
underwriting discount and estimated offering expenses payable by
us.
We
currently intend to use the net proceeds from the sale of the
securities offered by this prospectus supplement for general
corporate purposes, including research and development related to
preparations for our planned AV-101 MDD Phase 2 Adjunctive
Treatment Study, and working capital.
The table below reflects our current planned use of the net
proceeds from this offering, assuming no exercise of the Warrants.
Each of these amounts is an estimate only, and is subject to change
at any time before or after closing of the offering.
|
|
Amounts
in $000
|
|
|
|
|
Gross
proceeds
|
$2,400
|
|
Underwriting
discount, and other expenses of the offering
|
$(369)
|
|
Net
proceeds
|
$2,031
|
|
|
|
|
Research and
development:
|
|
|
Operations
|
$405
|
|
Preparation for our
AV-101 MDD Phase 2 Adjunctive
Treatment Study
|
$927
|
|
Total research and
development
|
$1,332
|
|
|
|
|
General and
administrative, working capital and other general corporate
purposes
|
$699
|
|
|
$2,031
|
Although we expect net proceeds from this offering to provide
sufficient funding to complete preparations for our AV-101 MDD
Phase 2 Adjunctive Treatment Study, the net proceeds from this
offering will not be sufficient to launch the study. Assuming no
exercise of the Warrants issued in this offering, we believe an
additional $15 million to $20 million will be required prior to the
launch of the AV-101 MDD Phase 2 Adjunctive Treatment Study in the
first quarter of 2018 to complete the study as proposed in the
fourth quarter of 2018. No assurances can be provided
that such additional capital will be available to us when
necessary, on reasonable terms, or at all. In the event we
are unable to raise such additional capital, our operations will be
negatively and materially affected.
Pending other uses, we intend to invest our proceeds from the
offering in short-term investments or hold them as cash. We cannot
predict whether the proceeds invested will yield a favorable
return. Our management will have broad discretion in the use of the
net proceeds from this offering, and investors will be relying on
the judgment of our management regarding the application of the net
proceeds.
DILUTION
If you purchase shares of our common stock in this offering, you
will experience dilution to the extent of the difference between
the combined public offering price per share and related Warrants
in this offering and our as adjusted net tangible book value per
share immediately after this offering assuming no value is
attributed to the Warrants, and such Warrants are accounted for and
classified as equity. Net tangible book value is total assets minus
the sum of liabilities and intangible assets. Net tangible book
value per share is net tangible book value divided by the total
number of shares of common stock outstanding. As of June 30, 2017,
our net tangible book value was approximately $(606,800), or
approximately $(0.07) per share.
After giving effect to the sale by us of 1,371,430 shares of common
stock and Warrants to purchase 1,892,572 shares of our common stock
in this offering at a combined public offering price of $1.75 per
share and related Warrants, and after deducting the underwriting
discount and estimated offering expenses payable by us, our as
adjusted net tangible book value as of June 30, 2017 would have
been approximately $1.4 million, or approximately $0.13 per share.
This amount represents an immediate increase in net tangible book
value of $0.20 per share to existing stockholders and an immediate
dilution in net tangible book value of $1.62 per share to
purchasers of our common stock and related Warrants in this
offering.
The following table illustrates the dilution in net tangible book
value per share to new investors:
|
Public
offering price per share and related Warrants:
|
|
$1.75
|
|
Net
tangible book value per share as of June 30, 2017
|
$(0.07)
|
|
|
Increase
in net tangible book value per share after this
offering
|
$0.20
|
|
|
|
|
|
|
Net
tangible book value per share after this offering
|
|
$0.13
|
|
|
|
|
|
Dilution
per share to new investors
|
|
$1.62
|
The foregoing discussion and table do not take into account further
dilution to new investors that could occur upon the exercise of
outstanding options or warrants having a per share exercise price
less than the combined public offering price in this offering. To
the extent that we raise additional capital through the sale of
equity or convertible debt securities, the issuance of those
securities could result in further dilution to our
stockholders.
The number of shares of our common stock that will be outstanding
immediately after the offering is based on 9,301,472 shares
outstanding as of June 30, 2017, and excludes:
●
2,522,593 shares of common stock reserved for
issuance upon exercise of outstanding stock options under our 1999
Stock Incentive Plan and our Amended and Restated 2016 Stock
Incentive Plan, with a weighted average exercise price of $3.77 per
share;
●
312,407 shares of common stock reserved for future
issuance in connection with future grants under our Amended and
Restated 2016 Stock Incentive Plan;
●
4,796,506 shares of common stock that have been
reserved for issuance upon exercise of outstanding warrants, with a
weighted average exercise price of $6.19 per
share;
●
750,000 shares of common stock reserved for
issuance upon conversion of 500,000 shares our Series A
Preferred;
●
1,160,240
shares of common stock reserved for issuance upon conversion of
1,160,240 shares of our Series B Preferred and 663,460 shares of
common stock for issuance as payment of accrued dividends on
outstanding shares of Series B Preferred;
●
2,318,012 shares of common stock reserved for
issuance upon conversion of 2,318,012 shares of our Series C
Preferred; and
●
1,892,572
shares of common stock issuable upon the exercise of the Warrants
offered hereby.
DESCRIPTION OF SECURITIES WE ARE OFFERING
Common stock
The material terms and provisions of our common stock are described
under the caption “Description of our Capital
Stock” in the
accompanying prospectus beginning on page 9. As of August 31, 2017,
we had 9,380,044 shares of our common stock outstanding. Our common
stock is listed on the NASDAQ Capital Market under the symbol
“VTGN”.
Warrants
Duration and Exercise Price: By means of this prospectus supplement, we
are offering Series A-1 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. Each Series A1 Warrant will be exercisable for a
five-year period commencing on March 7, 2018. Each Series A2
Warrant will be exercisable for a five-year period commencing on
the date of issuance.
Exercisability: Each of
the Warrants may be exercised, in whole or in part, by delivering
to the Company a written notice of election to exercise the
applicable Warrant and delivering to the Company cash payment of
the exercise price, if applicable. The exercise price and the
number of shares of our common stock issuable upon exercise of the
Warrants is subject to adjustment in the event of certain
subdivisions and combinations, including by any stock split or
reverse stock split, stock dividend, recapitalization or otherwise.
In addition, the Company has the right at any time during the term
of the Warrants to reduce the then-existing exercise price to any
amount and for any period of time deemed appropriate by our Board
of Directors.
Cashless Exercise: If, at
any time during the term of the Warrants, the issuance or resale of
shares of our common stock upon exercise of the Warrants is not
covered by an effective registration statement, the holder is
permitted to effect a cashless exercise of the Warrants (in whole
or in part) in which case the holder would receive upon such
exercise the net number of shares of common stock determined
according to the formula set forth in the Warrants. Shares issued
pursuant to a cashless exercise would be deemed to have been issued
pursuant to the exemption from registration provided by Section
3(a)(9) of the Securities Act of 1933, and amended (the
Securities
Act), and the shares of common
stock issued upon such cashless exercise would take on the
characteristics of the Warrants being exercised, including, for
purposes of Rule 144(d) promulgated under the Securities Act, a
holding period beginning from the original issuance date of the
Warrants.
Adjustment Provisions: The
exercise price and the number and type of securities purchasable
upon exercise of the Warrants are subject to adjustment upon
certain corporate events, including certain subdivisions,
combinations and similar events If we declare any dividend or
distribution of assets (including cash, stock or other securities,
evidence of indebtedness, purchase rights or other property), each
holder of a Warrant will be entitled to participate in such
distribution to the same extent that the holder would have
participated had the applicable Warrant been exercised immediately
before the record date for the distribution. In addition, the
Series A2 Warrants contain full ratchet anti-dilution protection
upon the issuance of any common stock, securities convertible into
common stock or certain other issuances at a price below the
then-existing exercise price of the Warrants, with certain
exceptions; provided,
however, that such
anti-dilution protection will terminate once the Company has raised
through the issuance of common stock or equity-linked securities
at least $20 million in gross proceeds
in the aggregate. In addition, the Company has the
right at any time during the term of the Warrants to reduce the
then-existing exercise price to any amount and for any period of
time deemed appropriate by our Board of Directors. The terms of the
Warrants, including the anti-dilution protections in the Series A2
Warrant described above, may make it difficult for us to raise
additional capital at prevailing market terms in the
future.
Transferability: Subject
to applicable laws, the Warrants may be offered for sale, sold,
transferred or assigned without our consent. However, as of the
date of this prospectus supplement there is no established trading
market for the Warrants and it is not expected that a trading
market for the Warrants will develop in the future. Without an
active trading market, the liquidity of the Warrants will be
limited.
Listing: We will not apply
to list the Warrants on NASDAQ Capital Market. We do not intend to
list the Warrants on any securities exchange or other quotation
system. Without an active market, the liquidity of the
Warrants will be limited.
Rights as a stockholder: Except as set forth in the Warrants or by
virtue of such holders’ ownership of shares of our common
stock, the holders of the Warrants do not have the rights or
privileges of holders of our common stock, including any voting
rights, until they exercise the Warrants.
Limitations on Exercise: The exercise of the Warrants may be limited
in certain circumstances if, after giving effect to such exercise,
the holder or any of its affiliates would beneficially own (as
determined in accordance with the terms of the Warrants) more than
4.99% (or, at the election of the holder, 9.99%) of our outstanding
common stock immediately after giving effect to the
exercise.
Fundamental Transactions: In the event of certain fundamental
transactions, as described in the Warrants and generally including
any merger or consolidation with or into another entity, the
holders of the Warrants shall thereafter have the right to exercise
the applicable Warrant for the same amount and kind of securities,
cash or property as it would have been entitled to receive upon the
occurrence of such fundamental transaction if it had been,
immediately prior to such fundamental transaction, the holder of
shares of common stock issuable upon exercise in full of the
Warrant. In the event of a Change of Control (as defined in the
Warrants) (other than a Change of Control which was not approved by
the Board of Directors, as to which this right shall not apply), at
the request of the holder delivered before the 30th day after such
Change of Control, a holder of a Warrant will have the right to
require us or any successor entity to purchase the holder’s
Warrant for the Black-Scholes Value of the remaining unexercised
portion of the Warrant on the effective date of such Change of
Control (determined in accordance with a formula specified in the
Warrants), payable in cash; provided, that if the applicable Change
of Control was not approved by our Board of Directors, such amount
shall be payable, at our option in either (x) shares of our common
stock or the consideration receivable by holders of common stock in
the Change of Control transaction, as applicable, valued at the
value of the consideration received by the shareholders in such
Change of Control, or (y) cash.
Dividends and Other Distributions: If we declare or make any dividend or other
distribution of our assets to holders of shares of our common stock
(including any distribution of cash, stock or other securities,
property, options, evidence of indebtedness or any other assets),
then, subject to certain limitation on exercise described in the
Warrants, each holder of a Warrant shall receive the distributed
assets that such holder would have been entitled to receive in the
distribution had the holder exercised the Warrant immediately prior
to the record date for the distribution.
The foregoing summary of certain terms and provisions of the
Warrants that are being offered hereby is not complete and is
subject to, and is qualified in its entirety by the provisions of
the form of the Warrants filed as exhibits to our Current Report on
Form 8-K filed in connection with this offering. Prospective
investors should carefully review the terms and provisions of the
warrant agreements and forms of the Warrants for a complete
description of the terms and conditions of the
Warrants.
UNDERWRITING
We have entered into an underwriting agreement with Oppenheimer
& Co. Inc. on August 31, 2017. Oppenheimer & Co. Inc. is
acting as the sole underwriter for this offering. The underwriting
agreement provides for the purchase of a specific number of shares
of common stock and related Series A1 and Series A2 Warrants by the
underwriter.
Subject to the terms and conditions of the underwriting agreement,
we have agreed to sell to the underwriter, and the underwriter has
agreed to purchase, at the public offering price less the
underwriting discount set forth on the cover page of this
prospectus supplement, the number of shares of common stock and the
related Warrants listed next to its name in the following
table:
|
Name
|
Number of Shares
|
Number of
Series A1 Warrants
|
Number of Series A2 Warrants
|
|
Oppenheimer
& Co. Inc.
|
1,371,430
|
1,388,931
|
503,641
|
|
Total
|
1,371,430
|
1,388,931
|
503,641
|
The underwriter is committed to purchase all the shares of common
stock and the related Warrants offered by us if it purchases any
such securities.
The underwriter proposes to offer the shares of common stock and
the related Warrants directly to the public at the public offering
price set forth on the cover page of this prospectus supplement.
After the public offering of the securities, the offering price and
other selling terms may be changed by the underwriter.
The following table shows the underwriting discount to be paid to
the underwriter in connection with this offering.
|
|
Per Share of Common Stock and Related Warrants
|
Total
|
|
Public
offering price
|
$1.75
|
$2,400,002.50
|
|
Underwriting
discount
|
$0.1225
|
$168,000.175
|
We estimate that our total expenses of the offering, including the
estimated underwriting discount, will be approximately $400,000,
which includes the costs and expenses for which we have agreed to
reimburse the underwriters for certain expenses, including for fees
and expenses of its legal counsel up to an amount of $85,000,
provided that any such costs and expenses may not exceed $105,000
in the aggregate.
Subject to certain exceptions, for a period through September 30,
2018, we have agreed not to negotiate with any other underwriter or
placement agent relating to a possible public or private offering
or placement of our securities or other financing without first
consulting and receiving the approval of the
underwriter.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities
Act.
We have agreed to a 75-day “lock-up” and our officers
and directors have agreed to a 90-day “lock-up” with
respect to shares of our common stock and other of our securities
that they beneficially own, including securities that are
convertible into shares of common stock and securities that are
exchangeable or exercisable for shares of common stock. This means
that, subject to certain exceptions, for a period of 75 days
following the date of the prospectus supplement, we may not, and
for a period of 90 days following the date of this prospectus
supplement, such persons may not offer, sell, pledge or otherwise
dispose of these securities without the prior written consent of
Oppenheimer & Co. Inc.
The underwriter has advised us that it does not intend to conduct
any stabilization or over-allotment activities in connection with
this offering.
Electronic Delivery of Preliminary Prospectus
Supplement: A prospectus
supplement in electronic format may be delivered to potential
investors by one or more of the underwriters participating in this
offering. The prospectus supplement in electronic format will be
identical to the paper version of such preliminary prospectus
supplement. Other than the prospectus supplement in electronic
format, the information on any underwriter’s website and any
information contained in any other website maintained by an
underwriter is not part of this prospectus supplement, the
accompanying prospectus or the registration statement of which this
prospectus supplement and the accompanying prospectus forms a
part.
The underwriter and its affiliates have provided in the past and
may provide from time to time in the future certain commercial
banking, financial advisory, investment banking and other services
for us and our affiliates in the ordinary course of their business,
for which they may receive customary fees and commissions. In
addition, from time to time, the underwriter and its affiliates may
effect transactions for their own accounts or the accounts of
customers, and hold on behalf of themselves or their customers,
long or short positions in our debt or equity securities or loans,
and may do so in the future.
NOTICE TO INVESTORS
Offer Restrictions Outside the United States
Other than in the United States, no action has been taken by us or
the underwriters that would permit a public offering of the
securities offered by this prospectus in any jurisdiction where
action for that purpose is required. The securities offered by this
prospectus may not be offered or sold, directly or indirectly, nor
may this prospectus supplement or any other offering material or
advertisements in connection with the offer and sale of any such
securities be distributed or published in any jurisdiction, except
under circumstances that will result in compliance with the
applicable rules and regulations of that jurisdiction. Persons into
whose possession this prospectus supplement comes are advised to
inform themselves about and to observe any restrictions relating to
the offering and the distribution of this prospectus supplement.
This prospectus supplement does not constitute an offer to sell or
a solicitation of an offer to buy any securities offered by this
prospectus supplement in any jurisdiction in which such an offer or
a solicitation is unlawful.
European Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member
State) an offer to the public
of any securities which are the subject of the offering
contemplated by this prospectus supplement may not be made in that
Relevant Member State other than the offers contemplated in this
prospectus supplement in name(s) of Member State(s) where
prospectus will be approved or passported for the purposes of a
non-exempt offer once this prospectus supplement has been approved
by the competent authority in such Member State and published and
passported in accordance with the Prospectus Directive as
implemented in name(s) of relevant Member State(s) except that an
offer to the public in that Relevant Member State of any securities
may be made at any time under the following exemptions under the
Prospectus Directive, if they have been implemented in that
Relevant Member State:
(a)
to legal entities which are authorized or
regulated to operate in the financial markets or, if not so
authorized or regulated, whose corporate purpose is solely to
invest in securities;
(b)
to any legal entity which has two or more of (1)
an average of at least 250 employees during the last financial
year; (2) a total balance sheet of more than €43,000,000 and
(3) an annual net turnover of more than €50,000,000, as shown
in its last annual or consolidated accounts;
(c)
by the representative to fewer than 100 natural or
legal persons (other than qualified investors as defined in the
Prospectus Directive); or
(d)
in any other circumstances falling within Article
3(2) of the Prospectus Directive, provided that no such offer of
securities shall result in a requirement for the publication by the
Company or any underwriter of a prospectus pursuant to Article 3 of
the Prospectus Directive.
For the purposes of this provision, the expression an “offer
to the public” in relation to any securities in any Relevant
Member State means the communication in any form and by any means
of sufficient information on the terms of the offer and any
securities to be offered so as to enable an investor to decide to
purchase any securities, as the same may be varied in that Member
State by any measure implementing the Prospectus Directive in that
Member State and the expression “Prospectus Directive”
means Directive 2003/71/EC and includes any relevant implementing
measure in each Relevant Member State.
United Kingdom
The underwriter has represented, warranted and agreed
that:
(a)
it has only communicated or caused to be
communicated and will only communicate or cause to be communicated
any invitation or inducement to engage in investment activity
(within the meaning of section 21 of the Financial Services and
Markets Act 2000 (the FSMA)) received by it in connection with the issue or
sale of any securities in circumstances in which section 21(1) of
the FSMA does not apply to the Company; and
(b)
it has complied with and will comply with all
applicable provisions of the FSMA with respect to anything done by
it in relation to the securities in, from or otherwise involving
the United Kingdom
Israel
In the State of Israel, the securities offered hereby may not be
offered to any person or entity other than the
following:
(a)
a fund for joint investments in trust (i.e.,
mutual fund), as such term is defined in the Law for Joint
Investments in Trust, 5754-1994, or a management company of such a
fund;
(b)
a provident fund as defined in Section 47(a)(2) of
the Income Tax Ordinance of the State of Israel, or a management
company of such a fund;
(c)
an insurer, as defined in the Law for Oversight of
Insurance Transactions, 5741-1981, (d) a banking entity or
satellite entity, as such terms are defined in the Banking Law
(Licensing), 5741-1981, other than a joint services company, acting
for their own account or for the account of investors of the type
listed in Section 15A(b) of the Securities Law
1968;
(d)
a company that is licensed as a portfolio manager,
as such term is defined in Section 8(b) of the Law for the
Regulation of Investment Advisors and Portfolio Managers,
5755-1995, acting on its own account or for the account of
investors of the type listed in Section 15A(b) of the Securities
Law 1968;
(e)
a company that is licensed as an investment
advisor, as such term is defined in Section 7(c) of the Law for the
Regulation of Investment Advisors and Portfolio Managers,
5755-1995, acting on its own account;
(f)
a company that is a member of the Tel Aviv Stock
Exchange, acting on its own account or for the account of investors
of the type listed in Section 15A(b) of the Securities Law
1968;
(g)
an underwriter fulfilling the conditions of
Section 56(c) of the Securities Law, 5728-1968;
(h)
a venture capital fund (defined as an entity
primarily involved in investments in companies which, at the time
of investment, (i) are primarily engaged in research and
development or manufacture of new technological products or
processes and (ii) involve above-average risk);
(i)
an entity primarily engaged in capital markets
activities in which all of the equity owners meet one or more of
the above criteria; and
(j)
an entity, other than an entity formed for the
purpose of purchasing securities in this offering, in which the
shareholders equity (including pursuant to foreign accounting
rules, international accounting regulations and U.S. generally
accepted accounting rules, as defined in the Securities Law
Regulations (Preparation of Annual Financial Statements), 1993) is
in excess of NIS 50 million.
Any offeree of the securities offered hereby in the State of Israel
shall be required to submit written confirmation that it falls
within the scope of one of the above criteria. This prospectus
supplement will not be distributed or directed to investors in the
State of Israel who do not fall within one of the above
criteria.
In Canada
The securities subject to this offering are not qualified for sale
in Canada and may not be offered or sold in Canada, directly or
indirectly, on our behalf.
LEGAL MATTERS
The validity of the securities offered by this prospectus will be
passed upon by Disclosure Law Group, a Professional Corporation,
San Diego, California (DLG). Partners of DLG beneficially own an aggregate
of 65,987 registered and/or restricted shares of our common
stock. Lowenstein Sandler
LLP, New York, New York, is acting as counsel for the underwriter
in connection with this offering.
EXPERTS
The financial statements of the Company incorporated in this
prospectus by reference to the Annual Report on Form 10-K for the
fiscal year ended March 31, 2017 have been audited by OUM & Co.
LLP, an independent registered public accounting firm, given on the
authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND
MORE INFORMATION
We are a public company and file annual, quarterly and special
reports, proxy statements and other information with the SEC. You
may read and copy any document we file at the SEC’s public
reference room at 100 F Street, NE, Washington, D.C. 20549. You can
request copies of these documents by writing to the SEC and paying
a fee for the copying cost. Please call the SEC at 1-800-SEC-0330
for more information about the operation of the public reference
room. Our SEC filings are also available, at no charge, to the
public at the SEC’s website at
http://www.sec.gov.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by us with the SEC are incorporated
by reference in this prospectus:
●
Annual
Report on Form 10-K for the fiscal year ended March 31, 2017, filed
on June 29, 2017;
●
Quarterly
Report on Form 10-Q for the quarter ended June 30, 2017, filed on
August 14, 2017;
●
Current
Reports on Form 8-K, filed on April 28, 2017, May 1, 2017, June 29,
2017, August 9, 2017, August 14, 2017 and August 31, 2017;
and
●
The
description of our common stock contained in the Registration
Statement on Form 8-A filed pursuant to Section 12(b) of the
Exchange Act on May 3, 2016, including any amendment or report
filed with the SEC for the purpose of updating this
description.
We also incorporate by reference all documents we file pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act (other than
any portions of filings that are furnished rather than filed
pursuant to Items 2.02 and 7.01 of a Current Report on Form 8-K)
after the date of the initial registration statement of which this
prospectus is a part and prior to effectiveness of such
registration statement. All documents we file in the future
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this prospectus and prior to the termination of
the offering are also incorporated by reference and are an
important part of this prospectus.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or
superseded for the purposes of this registration statement to the
extent that a statement contained herein or in any other
subsequently filed document which also is or deemed to be
incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part
of this registration statement.
We will provide to each person, including any beneficial owner, to
whom a prospectus is delivered, a copy of this prospectus
supplement and any or all of the information that has been
incorporated by reference in the prospectus supplement but not
delivered herewith. You may request a copy of these filings,
excluding the exhibits to such filings which we have not
specifically incorporated by reference in such filings, at no cost,
by writing to or calling us at:
VistaGen Therapeutics, Inc.
Attn: Corporate Secretary
343 Allerton Avenue
South San Francisco, CA 94080
(650) 577-3600
Except for the specific incorporated documents listed above, no
information available on or through our website shall be deemed to
be incorporated in this prospectus supplement or the accompanying
prospectus.
S-49
BASE PROSPECTUS
$100,000,000
Common Stock
Preferred Stock
Warrants
Units
From time to time, we may offer and sell, in one or more offerings,
up to $100,000,000 of any combination of the securities described
in this prospectus. We may also offer securities as may be issuable
upon conversion, redemption, repurchase, exchange or exercise of
any securities registered hereunder, including any applicable
anti-dilution provisions.
This prospectus provides a general description of the securities we
may offer from time to time. Each time we offer securities, we will
provide specific terms of the securities offered in a supplement to
this prospectus. We may also authorize one or more free writing
prospectuses to be provided to you in connection with an offering.
The prospectus supplement and any related free writing prospectus
may also add, update or change information contained in this
prospectus. You should carefully read this prospectus, the
applicable prospectus supplement and any related free writing
prospectus, as well as any documents incorporated by reference,
before you invest in any of the securities being
offered.
Our common stock is quoted on The NASDAQ Capital Market under the
symbol “VTGN”. The last reported sale price of our
common stock on March 31, 2017 was $1.96 per share.
We may offer and sell our securities to or through one or more
agents, underwriters, dealers or other third parties or directly to
one or more purchasers on a continuous or delayed basis. If agents,
underwriters or dealers are used to sell our securities, we will
name them and describe their compensation in a prospectus
supplement. The price to the public of our securities and the net
proceeds we expect to receive from the sale of such securities will
also be set forth in a prospectus supplement. For additional
information on the methods of sale, you should refer to the section
entitled “Plan of
Distribution” in this
prospectus.
As of January 10, 2017, the aggregate market value of our
outstanding common stock held by non-affiliates was approximately
$31.4 million, which was calculated based on 8,543,137 shares of
outstanding common stock held by non-affiliates, at a price per
share of $3.68. Pursuant to General Instruction I.B.6 of Form S-3,
in no event will we sell the securities described in this
prospectus in a public primary offering with a value exceeding more
than one-third (1/3) of the aggregate market value of our common
stock held by non-affiliates in any twelve (12)-month period, so
long as the aggregate market value of our outstanding common stock
held by non-affiliates remains below $75 million. During the twelve
(12) calendar months prior to and including the date of this
prospectus, we have not offered or sold any securities pursuant to
General Instruction I.B.6 of Form S-3.
Our business and investing in our
securities involves significant risks. You should review carefully
the risks and uncertainties referenced under the heading
“Risk
Factors” on page 5 of
this prospectus, as well as those contained in the applicable
prospectus supplement and any related free writing prospectus, and
in the other documents that are incorporated by reference into this
prospectus or the applicable prospectus
supplement.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is July 27, 2017
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement filed with the
Securities and Exchange Commission (the SEC), using a “shelf” registration
process. Under this shelf registration process, we may
sell the securities described in this prospectus in one or more
offerings. This prospectus provides you with a general
description of the securities which may be offered. Each
time we offer securities for sale, we will provide a prospectus
supplement that contains information about the specific terms of
that offering. Any prospectus supplement may also add or update
information contained in this prospectus. You should
read both this prospectus and any prospectus supplement together
with additional information described below under
“Where You Can Find More
Information” and
“Incorporation of Certain
Information by Reference.”
You should rely only on the information contained or incorporated
by reference in this prospectus, and in any prospectus
supplement. We have not authorized any other person to
provide you with different information. If anyone
provides you with different or inconsistent information, you should
not rely on it. We are not making offers to sell or
solicitations to buy the securities described in this prospectus in
any jurisdiction in which an offer or solicitation is not
authorized, or in which the person making that offer or
solicitation is not qualified to do so or to anyone to whom it is
unlawful to make an offer or solicitation. You should
not assume that the information in this prospectus or any
prospectus supplement, as well as the information we file or
previously filed with the SEC that we incorporate by reference in
this prospectus or any prospectus supplement, is accurate as of any
date other than its respective date. Our business,
financial condition, results of operations and prospects may have
changed since those dates.
This prospectus contains summaries of certain provisions contained
in some of the documents described herein, but reference is made to
the actual documents for complete information. All of the summaries
are qualified in their entirety by the actual documents. Copies of
some of the documents referred to herein have been filed, will be
filed or will be incorporated by reference as exhibits to the
registration statement of which this prospectus is a part, and you
may obtain copies of those documents as described below under the
heading “Where You Can Find More
Information”.
COMPANY OVERVIEW
This summary highlights information contained elsewhere in this
prospectus. This summary does not contain all the information you
should consider before buying our common stock. You should read the
following summary together with the more detailed information
appearing in this prospectus, including the section titled
“Risk Factors” on page 5, before deciding whether to
purchase our securities.
All brand names or trademarks appearing in this 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.
Overview
We are a clinical-stage biopharmaceutical company focused on
developing new generation medicines for depression and other
central nervous system (CNS) disorders.
AV-101, our lead CNS product candidate, is a new generation oral
antidepressant prodrug candidate in Phase 2 development as an
adjunctive treatment for Major Depressive Disorder
(MDD) in patients with an inadequate response to
standard antidepressants approved by the U.S. Food and Drug
Administration (FDA). We believe AV-101 may also have the
potential to treat multiple additional CNS diseases and disorders,
including chronic neuropathic pain, epilepsy, Huntington’s
disease and Parkinson’s disease. AV-101’s
mechanism of action, as an N-methyl D aspartate receptor
(NMDAR) antagonist binding selectively at the glycine
binding (GlyB) co-agonist site of the NMDAR, is fundamentally
differentiated from all FDA-approved antidepressants currently on
the market, as well as all atypical antipsychotics used as
adjunctive treatments with current
antidepressants.
Clinical studies conducted at the U.S. National Institute of Mental
Health (NIMH), part of the U.S. National Institutes of Health
(NIH), by 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, have focused on the antidepressant effects of low dose
intravenous (IV) administration of ketamine hydrochloride
(ketamine), an NMDAR antagonist, in patients with
treatment-resistant MDD. These NIMH studies, as well as clinical
research at Yale University and other academic institutions, have
demonstrated robust antidepressant effects in treatment-resistant
MDD patients within twenty-four hours of a single IV dose of
ketamine.
As published in the October 2015 issue of the
peer-reviewed, Journal of Pharmacology and
Experimental Therapeutics, in an article entitled, The prodrug 4-chlorokynurenine
causes ketamine-like antidepressant effects, but not side effects,
by NMDA/glycineB-site inhibition, using well-established preclinical models of
depression, AV-101 was shown to induce 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
the GlyB site and also involved the activation of another key
neurological pathway, the
alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid
(AMPA) receptor pathway
In February 2015, we entered into a Cooperative Research and
Development Agreement (CRADA) with the NIMH. Under the CRADA, the NIMH is
funding, and Dr. Zarate, as Principal Investigator, and his team
are conducting, a 20-25 patient Phase 2 clinical study of AV-101 as
a monotherapy in subjects with treatment-resistant MDD
(the NIMH Study). We believe orally-administered AV-101 may have
potential to deliver ketamine-like antidepressant effects without
ketamine’s psychological and other side effects. We currently
anticipate that the NIMH will complete the NIMH Study at the end of
2017.
We are preparing to launch our Phase 2 clinical study of AV-101 as
a new generation adjunctive treatment of MDD in adult patients with
an inadequate response to standard, FDA-approved antidepressants
(Phase 2
Study). We currently
anticipate commencement of this multi-center, multi-dose, double
blind, placebo-controlled efficacy and safety study of AV-101 by
the end of the second quarter of 2017. Dr. Maurizio Fava, Professor
of Psychiatry at Harvard Medical School and Director, Division of
Clinical Research, Massachusetts General Hospital
(MGH) Research Institute, will be the Principal
Investigator of the Phase 2 Study. 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 of the
Phase 2 Study by the end of 2018.
VistaStem Therapeutics (VistaStem) is our wholly owned subsidiary focused on
applying human pluripotent stem cell (hPSC) technology, internally and with third-party
collaborators, to discover, rescue, develop and commercialize (i)
proprietary new chemical entities (NCEs), including small molecule NCEs with regenerative
potential, for CNS and other diseases and (ii) cellular therapies
involving stem cell-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. In December 2016, we exclusively sublicensed to
BlueRock Therapeutics LP, a next generation regenerative medicine
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
(the BlueRock
Agreement). VistaStem may
also pursue additional potential regenerative medicine
(RM) applications, including using blood, cartilage,
and/or liver cells derived from hPSCs for (A) cell-based therapy,
(B) cell repair therapy, and/or (C) tissue engineering. In a
manner similar to our exclusive sublicense agreement with BlueRock
Therapeutics, VistaStem may pursue these additional RM applications
in collaboration with third-parties.
AV-101 and Major Depressive Disorder
Background
The World Health Organization (WHO) estimates that 300 million people worldwide are
affected by depression. According to the NIH, major depression is
one of the most common mental disorders in the U.S. The NIMH
reports that, in 2014, an estimated 15.7 million adults aged 18 or
older in the U.S. had at least one major depressive episode in the
past year. This represented 6.7 percent of all U.S. adults.
According to the U.S. Centers for Disease Control and Prevention
(CDC) one in 10 Americans over the age of 12 takes a
standard, FDA-approved antidepressant.
Most standard, FDA-approved antidepressants target neurotransmitter
reuptake inhibition – either serotonin (antidepressants known
as SSRIs) or serotonin/norepinephrine (antidepressants
known as SNRIs). Even when effective, these standard depression
medications take many weeks to achieve adequate antidepressant
effects. Nearly two out of every three drug-treated depression
patients, including an estimated 6.9 million drug-treated MDD
patients in the U.S., obtain inadequate therapeutic benefit from
initial treatment with a standard antidepressant. Unfortunately,
even after treatment with many different standard antidepressants,
nearly one out of every three drug-treated depression patients
still do not achieve adequate therapeutic benefits from their
antidepressant medication. Such patients with an
inadequate response to standard antidepressants often seek to
augment their treatment regimen by adding an atypical antipsychotic
(drugs such as, for example, aripiprazole), despite only modest
potential therapeutic benefit and the risk of additional side
effects from atypical antipsychotics.
All standard, FDA-approved antidepressants have risks of
significant side effects, including, among others, potential
anxiety, metabolic syndrome, sleep disturbance and sexual
dysfunction. Adjunctive use of atypical antipsychotics to augment
inadequately performing standard antidepressants increases the risk
of serious side effects, including, potentially, tardive
dyskinesia, significant weight gain, diabetes and heart disease,
while offering only a modest potential increase in therapeutic
benefit.
AV-101
AV-101 is our oral new generation antidepressant prodrug candidate
in Phase 2 clinical development in the U.S. for the adjunctive
treatment of MDD patients with an inadequate response to standard,
FDA-approved antidepressants. As published in the October 2015
issue of the peer-reviewed, Journal of Pharmacology and
Experimental Therapeutics, in an article entitled, The prodrug 4-chlorokynurenine
causes ketamine-like antidepressant effects, but not side effects,
by NMDA/glycineB-site inhibition, using well-established preclinical models of
depression, AV-101 was shown to induce 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
the GlyB site and also involved the activation of another key
neurological pathway, the
alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid
(AMPA) receptor pathway. We believe activation of the
AMPA receptor pathway is a key final common pathway feature of new
generation antidepressants.
Following the completion of our NIH-funded, randomized, double
blind, placebo-controlled AV-101 Phase 1 safety studies, in
February 2015, we entered into a Cooperative Research and
Development Agreement (CRADA) with the NIMH. Under the CRADA, the NIMH is
funding, and Dr. Zarate, as Principal Investigator, and his team
are conducting, a 20-25 patient Phase 2 clinical study of AV-101 as
a monotherapy in subjects with treatment-resistant MDD
(NIMH
Study). We currently
anticipate that the NIMH will complete the NIMH Study by the end of
2017.
We are preparing to launch our approximately 180-patient Phase 2
Study of AV-101 as an adjunctive treatment of MDD in patients with
an inadequate response to standard, FDA-approved antidepressants.
We currently anticipate the launch of the Phase 2 Study, with Dr.
Maurizio Fava of Harvard Medical School serving as Principal
Investigator, by the end of the second quarter of 2017. We
currently anticipate top line results of the Phase 2 Study by the
end of 2018.
We believe prior preclinical studies support the hypothesis that
AV-101 may also have the potential to treat multiple CNS disorders
and neurodegenerative diseases in addition to MDD, including
chronic neuropathic pain, epilepsy, Parkinson’s disease and
Huntington’s disease, where modulation of the NMDAR, AMPA
pathway and/or key active metabolites of AV-101 may achieve
therapeutic benefit. However, human clinical studies will be
required before this therapeutic potential could be demonstrated.
There is no guarantee that human clinical trials would be
successful or that the FDA would approve the use of AV-101 for the
treatment of one or more of these additional CNS
indications.
CardioSafe 3D™; NCE Drug Rescue and Regenerative
Medicine
VistaStem Therapeutics is our wholly owned subsidiary focused on
applying hPSC technology to discover, rescue, develop and
commercialize proprietary small molecule NCEs for CNS and other
diseases, as well as potential cellular therapies involving stem
cell-derived blood, cartilage, heart and liver
cells.CardioSafe 3D™ is our
customized in vitro cardiac bioassay system capable of
predicting potential human heart toxicity of small molecule
NCEs in vitro, long before they are ever tested in animal
and human studies. Potential commercial applications of our stem
cell technology platform involve (i) usingCardioSafe 3D internally for NCE drug discovery and
(ii) regenerative medicine (RM) and cellular therapies. Drug rescue involves
leveraging substantial prior research and development investments
by pharmaceutical companies and others related to public domain NCE
programs terminated before FDA approval due to heart toxicity
risks. In December 2016, we exclusively sublicensed to
BlueRock Therapeutics LP, 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. We may also
pursue additional potential RM applications using blood, cartilage,
and/or liver cells derived from hPSCs for (A) cell-based therapy
(injection of stem cell-derived mature organ-specific cells
obtained through directed differentiation), (B) cell repair therapy
(induction of regeneration by biologically active molecules
administered alone or produced by infused genetically engineered
cells), or (C) tissue engineering (transplantation
of in
vitro grown complex
tissues) using hPSC-derived blood, bone, cartilage, and/or liver
cells. In a manner similar to the BlueRock Therapeutics
Agreement, we may pursue these additional RM and cellular therapy
applications in collaboration with
third-parties.
Risk Factors
Our business is subject to substantial risk. Please carefully
consider the section titled “Risk
Factors” on page 5 of
this prospectus for a discussion of the factors you should
carefully consider before deciding to purchase the securities
offered by this prospectus. These risks include, among
others:
●
we
are a development stage biopharmaceutical company with no current
revenues or approved products, and limited experience developing
new drug, biological and/or regenerative medicine candidates, which
makes it difficult to assess our future viability;
●
we
depend heavily on the success of AV-101, and we cannot be certain
that we will be able to obtain regulatory approval for, or
successfully commercialize, AV-101, or any product
candidate;
●
failures
or delays in the commencement or completion of our planned clinical
trials could delay, prevent or limit our ability to generate
revenue and continue our business;
●
we
face significant competition, and if we are unable to compete
effectively, we may not be able to achieve or maintain significant
market penetration or improve our results of
operations;
●
some
of our programs have been partially supported by government grants,
which may not be available to us in the future;
●
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;
and
●
we
have incurred significant net losses since inception and we will
continue to incur substantial operating losses for the foreseeable
future.
Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also impair our business
operations. You should be able to bear a complete loss of your
investment.
Corporate information
VistaGen Therapeutics, Inc., a Nevada corporation, is the parent of
VistaGen Therapeutics, Inc. (dba VistaStem Therapeutics, Inc.), a
wholly-owned California corporation founded in 1998. Our principal
executive offices are located at 343 Allerton Avenue, South San
Francisco, California 94080, and our telephone number is (650)
577-3600. Our website address is www.vistagen.com.
The information contained on our website is not part of this
prospectus. We have included our website address as a factual
reference and do not intend it to be an active link to our
website.
RISK
FACTORS
An investment in our securities involves a high degree of risk. You
should consider the risks, uncertainties and assumptions described
under Item 1A, “Risk
Factors,” in our Annual
Report on Form 10-K for the fiscal year ended March 31, 2016, as
well as subsequently filed Quarterly Reports on Form 10-Q, which
risk factors are incorporated herein by reference, and may be
amended, supplemented or superseded from time to time by other
reports we file with the SEC in the future and any prospectus
supplement related to a particular offering. The risks and
uncertainties we have described in our Annual Report on Form 10-K
for the fiscal year ended March 31, 2016 and subsequent Quarterly
Reports on Form 10-Q are not the only ones we face. Additional
risks and uncertainties not presently known to us or that we
currently deem immaterial may also affect our operations. The
occurrence of any of these known or unknown risks might cause you
to lose all or part of your investment in the offered
securities.
CAUTIONARY NOTES REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. All statements contained in
this prospectus and/or any applicable prospectus supplement 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:
●
the
availability of capital to satisfy our working capital
requirements;
●
the
accuracy of our estimates regarding expenses, future revenues and
capital requirements;
●
our plans to develop and commercialize our lead product candidate,
AV-101, initially as an adjunctive treatment for MDD in patients
with an inadequate response to standard, FDA-approved
antidepressants, and subsequently as a treatment for additional CNS
diseases and disorders;
●
our
ability to initiate and complete our clinical trials and to advance
our product candidates into additional clinical trials, including
pivotal clinical trials, and successfully complete such clinical
trials;
●
regulatory
developments in the U.S. and foreign countries;
●
the
performance of the U.S. National Institute of Mental Health, our
third-party contractors involved with the manufacturer and
production of our drug candidates for nonclinical and clinical
development activities, contract research organizations and other
third-party nonclinical and clinical development collaborators and
regulatory service providers;
●
our
ability to obtain and maintain intellectual property protection for
our core assets;
●
the
size of the potential markets for our product candidates and our
ability to serve those markets;
●
the
rate and degree of market acceptance of our product candidates for
any indication once approved;
●
the
success of competing products and product candidates in development
by others that are or become available for the indications that we
are pursuing;
●
the
loss of key scientific, clinical and nonclinical development,
and/or management personnel, internally or from one of our
third-party collaborators; and
●
other risks and uncertainties, including
those described under
Item 1A, “Risk
Factors,” in our Annual
Report on Form 10-K for the fiscal year ended March 31, 2016 and
subsequent Quarterly Reports on Form 10-Q, which risk factors are
incorporated herein by reference.
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
prospectus, as well as certain information incorporated by
reference into this prospectus, 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 prospectus 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.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for recently completed
fiscal years and any required interim periods will be specified in
a prospectus supplement or in a document that we file with the SEC
and incorporated by reference in the future.
USE OF PROCEEDS
Unless otherwise provided in the applicable prospectus supplement,
we intend to use the net proceeds from the sale of
the securities under this prospectus for general corporate
purposes, including research and development, working capital
and capital expenditures. We may use a portion of the net proceeds
to fund production of, and nonclinical and clinical studies related
to Phase 2 and Phase 3 development of, AV-101 and other drug
candidates. We may also use the net proceeds from the sale of
the securities under this prospectus to in-license, acquire or
invest in complementary businesses, technologies, products
or assets. However, we have no current commitments or
obligations to do so. We may set forth additional information on
the use of proceeds from the sale or the securities we offer
under this prospectus in a prospectus supplement relating to the
specific offering. We cannot currently allocate specific
percentages of the net proceeds that we may use for the purposes
specified above. As a result, our management will have broad
discretion in the allocation of the net proceeds. Pending the
application of the net proceeds, we intend to invest the
net proceeds in short- and intermediate-term, interest-bearing
obligations, investment-grade instruments, certificates of deposit
or direct or guaranteed obligations of the U.S.
government.
DESCRIPTION OF OUR
CAPITAL STOCK
General
Our authorized capital stock consists of 30.0 million shares of
common stock, $0.001 par value per share, and 10.0 million shares
of preferred stock, $0.001 par value per share. The following is a
description of our common stock and certain provisions of our
Restated Articles of Incorporation (Articles), and our amended and restated bylaws
(Bylaws), and certain provisions of Nevada
law.
As of March 31, 2017, there were issued and outstanding, or
reserved for issuance:
●
8,781,471
shares of common stock held by approximately 700 stockholders of
record;
●
750,000
shares of common stock reserved for issuance upon conversion of
500,000 shares our Series A Preferred held by one institutional
investor and one accredited individual investor;
●
1,160,240
shares of common stock reserved for issuance upon conversion of
1,160,240 shares of our Series B Preferred held by two
institutional investors;
●
2,318,012
shares of common stock reserved for issuance upon conversion of
2,318,012 shares of our Series C Preferred held by one
institutional investor;
●
4,549,006
shares of common stock that have been reserved for issuance upon
exercise of outstanding warrants, with a weighted average exercise
price of $6.31 per share;
●
1,659,324
shares of common stock reserved for issuance upon exercise of
outstanding stock options under our 1999 Stock Incentive Plan and
our Amended and Restated 2016 Stock Incentive Plan, with a weighted
average exercise price of $4.76 per share; and
●
1,134,911
shares of common stock reserved for future issuance in connection
with future grants under our Amended and Restated 2016 Stock
Incentive Plan.
We may elect or be required to amend our Articles to increase the
number of shares of common stock authorized for issuance prior to
completing sales of shares of our common stock, or securities
convertible and/or exchangeable into shares of our common stock
described in this prospectus.
Common Stock
This section describes the general terms of our common stock that
we may offer from time to time. For more detailed information, a
holder of our common stock should refer to our Articles and our
Bylaws, copies of which are filed with the SEC as exhibits to the
registration statement of which this prospectus is a
part.
Except as otherwise expressly provided in our Articles, or as
required by applicable law, all shares of our common stock have the
same rights and privileges and rank equally, share ratably and are
identical in all respects as to all matters, including, without
limitation, those described below. All outstanding shares of common
stock are fully paid and nonassessable.
Voting Rights
Each holder of our common stock is entitled to cast one vote for
each share of common stock held on all matters submitted to a vote
of stockholders. Cumulative voting for election of directors is not
allowed under our Articles, which means that a plurality of the
shares voted can elect all of the directors then outstanding for
election. Except as otherwise provided under Nevada law or our
Articles, and Bylaws, on matters other than election of directors,
action on a matter is approved if the votes cast favoring the
action exceed the votes cast opposing the action.
Dividend Rights
The holders of outstanding shares of our common stock are entitled
to receive dividends out of funds legally available, if our board
of directors, in its discretion, determines to issue dividend, and
only at the times and in the amounts that our board of directors
may determine. Our board of directors is not obligated to declare a
dividend. We have not paid any dividends in the past and we do not
intend to pay dividends in the foreseeable future.
Liquidation Rights
Upon our liquidation, dissolution or winding-up, the holders of our
common stock will be entitled to share equally, identically and
ratably in all assets remaining, subject to the prior satisfaction
of all outstanding debt and liabilities and the preferential rights
and payment of liquidation preferences, if any, on any outstanding
shares of preferred stock.
No Preemptive or Similar Rights
Our common stock is not subject to conversion, redemption, sinking
fund or similar provisions.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is
Computershare Trust Company, N.A., Jersey City, New
Jersey.
Preferred Stock
This section describes the general terms and provisions of our
outstanding shares of preferred stock, as well as preferred stock
that we may offer from time to time. The applicable prospectus
supplement will describe the specific terms of the shares of
preferred stock offered through that prospectus supplement, which
may differ from the terms we describe below. We will file a
copy of the certificate of designation that contains the terms of
each new series of preferred stock with the SEC each time we issue
a new series of preferred stock, and these certificates of
designation will be incorporated by reference into the registration
statement of which this prospectus is a part. Each certificate of
designation will establish the number of shares included in a
designated series and fix the designation, powers, privileges,
preferences and rights of the shares of each series as well as any
applicable qualifications, limitations or restrictions. A holder of
our preferred stock should refer to the applicable certificate of
designation, our Articles and the applicable prospectus supplement
(and any related free writing prospectus that we may authorize to
be provided to you) for more specific information.
We are authorized, subject to limitations prescribed by Nevada law,
to issue up to 10.0 million shares of preferred stock in one or
more series, to establish from time to time the number of shares to
be included in each series and to fix the designation, powers,
preferences and rights of the shares of each series and any of its
qualifications, limitations or restrictions. Our board of directors
can increase or decrease the number of shares of any series, but
not below the number of shares of that series then outstanding,
without any further vote or action by our stockholders. Our board
of directors may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting
power or other rights of the holders of the common stock. The
issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes,
could, among other things, have the effect of delaying, deferring
or preventing a change in control of the Company and may adversely
affect the market price of our common stock and the voting and
other rights of the holders of our common stock.
Outstanding Series of Preferred Stock
Currently, there are three series of our preferred stock
outstanding- Series A Convertible Preferred Stock, Series B 10%
Convertible Preferred Stock, and Series C Convertible Preferred
Stock. The rights and preferences associated with each series are
summarized below.
Series A Preferred
General
In December 2011, our board of directors authorized the creation of
a series of up to 500,000 shares of Series A Preferred. The
Certificate of Designation of the Relative Rights and Preferences
of the Series A Convertible Preferred Stock was filed with the
Nevada Secretary of State effective December 20, 2011.
Conversion and Rank
At March 31, 2017, there were 500,000 shares of Series A Preferred
outstanding, which shares are currently subject to beneficial
ownership blockers and are exchangeable at the option of the
holders into an aggregate of 750,000 shares of our common stock.
The Series A Preferred ranks prior to our common stock for purposes
of liquidation preference.
Conversion Restriction
At no time may a holder of shares of Series A Preferred convert
shares of the Series A Preferred if the number of shares of common
stock to be issued pursuant to such conversion would result in such
holder beneficially owning (as determined in accordance with
Section 13(d) of the Exchange Act and the rules thereunder) more
than 9.99% of all of the common stock outstanding at such
time; provided, however, that this limitation may be waived upon
sixty-one (61) days’ notice to us.
Dividend Rights
The Series A Preferred has no separate dividend rights. However,
whenever the board of directors declares a dividend on the common
stock, each holder of record of a share of Series A Preferred, or
any fraction of a share of Series A Preferred, on the date set by
the board of directors to determine the owners of the common stock
of record entitled to receive such dividend (Record Date) shall be entitled to receive out of any assets
at the time legally available therefor, 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, or such
fraction of a share, of Series A Preferred could be exchanged on
the Record Date.
Voting Rights
The Series A Preferred has no voting rights, except with respect to
transactions upon which the Series A Preferred shall be entitled to
vote separately as a class, The common stock into which the Series
A Preferred is exchangeable shall, upon issuance, have all of the
same voting rights as other issued and outstanding shares of our
common stock.
Liquidation Rights
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, 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 exchanged
before any payment shall be made or any assets distributed to the
holders of the common stock or any other junior stock.
Series B Preferred
General
In May 2015, our board of directors authorized the creation of a
series of up to 4.0 million shares of Series B 10% Convertible
Preferred Stock (Series B
Preferred). The Certificate of
Designation of the Relative Rights and Preferences of the Series B
10% Convertible Preferred Stock was filed with the Nevada Secretary
of State on May 7, 2015 (the Series B Certificate of
Designation).
Conversion
Each share of Series B Preferred is convertible, at the option of
the holder (Voluntary
Conversion), into one (1) share
of the Company’s common stock. All outstanding shares of
Series B Preferred are also automatically convertible into 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 the Company of at least $10.0 million; (ii) a
registered public offering of Common Stock with aggregate gross
proceeds to the Company of at least $10.0 million; or (iii) for 20
consecutive trading days the Company’s 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 are subject to certain beneficial ownership
blockers set forth in Section 6 of the Certificate of
Designation.
Following the completion of our $10.9 million underwritten public
offering of our common stock in May 2016, which public offering
occurred concurrently with and facilitated our listing 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. At March 31, 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 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.
Conversion Restriction
At no time may a holder of shares of Series B Preferred convert
shares of the Series B Preferred, either by Voluntary Conversion or
Automatic Conversion, if the number of shares of common stock to be
issued pursuant to such conversion would result in such holder
beneficially owning (as determined in accordance with Section 13(d)
of the Exchange Act and the rules thereunder) more than 9.99% of
all of the common stock outstanding at such
time; provided, however, that this limitation may be waived upon
sixty-one (61) days’ notice to us.
Rank
The Series B Preferred ranks prior to our common stock,
and pari passu with the Series A Preferred for purposes of
liquidation preference.
Dividend Rights
Prior to either a Voluntary Conversion or Automatic Conversion,
shares of Series B Preferred will accrue dividends, payable only in
unregistered common stock, at a rate of 10% per annum
(the Accrued
Dividend). The Accrued Dividend
will be 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 Dividend.
Voting Rights
The Series B Preferred has no voting rights, except with respect to
transactions upon which the Series B Preferred shall be entitled to
vote separately as a class. The common stock into which the Series
B Preferred shall be exchangeable shall, upon issuance, have all of
the same voting rights as other issued and outstanding shares of
our common stock.
Liquidation Rights
Upon any liquidation, dissolution, or winding-up of the Company,
whether voluntary or involuntary, the holders of Series B Preferred
are entitled to receive out of the Company’s assets, whether
capital or surplus, 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 the assets of the Company 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.
Series C Preferred
General
In January 2016, our board of directors authorized the creation of
a series of up to 3.0 million shares of Series C Convertible
Preferred Stock (Series C
Preferred). The Certificate of
Designation of the Relative Rights and Preferences of the Series C
Convertible Preferred Stock was filed with the Nevada Secretary of
State, effective January 25, 2016 (the Series C Certificate of
Designation).
Conversion and Rank
At March 31, 2017, there were 2,318,012 shares of Series C
Preferred outstanding, which shares of Series C Preferred are
currently subject to beneficial ownership blockers and are
exchangeable at the option of the holder into 2,318,012 shares of
our common stock. The Series C Preferred ranks prior to our common
stock for purposes of liquidation preference,
and pari passu with the Series A Preferred and Series B
Preferred.
Conversion Restriction
At no time may a holder of shares of Series C Preferred convert
shares of the Series C Preferred if the number of shares of common
stock to be issued pursuant to such conversion would result in such
holder beneficially owning (as determined in accordance with
Section 13(d) of the Exchange Act and the rules thereunder) more
than 9.99% of all of the common stock outstanding at such
time; provided, however, that this limitation may be waived upon
sixty-one (61) days’ notice to us.
Dividend Rights
The Series C Preferred has no separate dividend rights. However,
whenever the board of directors declares a dividend on the common
stock, each holder of record of a share of Series C Preferred, or
any fraction of a share of Series C Preferred, on the date set by
the board of directors to determine the owners of the common stock
of record entitled to receive such dividend (Record Date) shall be entitled to receive out of any assets
at the time legally available therefor, 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, or such
fraction of a share, of Series C Preferred could be exchanged on
the Record Date.
Voting Rights
The Series C Preferred has no voting rights, except with respect to
transactions upon which the Series C Preferred shall be entitled to
vote separately as a class. The common stock into which the Series
C Preferred is exchangeable shall, upon issuance, have all of the
same voting rights as other issued and outstanding shares of our
common stock.
Liquidation Rights
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.
Shares of Preferred Stock Issuable Pursuant to this
Prospectus
We will incorporate by reference as an exhibit to the registration
statement, which includes this prospectus, the form of any
certificate of designation that describes the terms of the series
of preferred stock we are offering. This description and the
applicable prospectus supplement will include:
●
the
title and stated value;
●
the
number of shares authorized;
●
the
liquidation preference per share;
●
the
purchase price;
●
the
dividend rate, period and payment date, and method of calculation
for dividends;
●
whether
dividends will be cumulative or non-cumulative and, if cumulative,
the date from which dividends will accumulate;
●
the
procedures for any auction and remarketing, if any;
●
the
provisions for a sinking fund, if any;
●
the
provisions for redemption or repurchase, if applicable, and any
restrictions on our ability to exercise such redemption and
repurchase rights;
●
any
listing of the preferred stock on any securities exchange or
market;
●
whether
the preferred stock will be convertible into our common stock, and,
if applicable, the conversion price, or how it will be calculated,
and the conversion period;
●
voting
rights, if any, of the preferred stock;
●
preemptive
rights, if any;
●
restrictions
on transfer, sale or other assignment, if any;
●
a
discussion of any material United States federal income tax
considerations applicable to the preferred stock;
●
the
relative ranking and preferences of the preferred stock as to
dividend rights and rights if we liquidate, dissolve or wind up our
affairs;
●
any
limitations on issuance of any class or series of preferred stock
ranking senior to or on a parity with the series of preferred stock
as to dividend rights and rights if we liquidate, dissolve or wind
up our affairs; and
●
any
other specific terms, preferences, rights or limitations of, or
restrictions on, the preferred stock.
When we issue shares of preferred stock under this prospectus, the
shares will fully be paid and nonassessable and will not have, or
be subject to, any preemptive or similar rights.
DESCRIPTION OF OUR WARRANTS
The following description, together with the additional information
we include in any applicable prospectus supplements or free writing
prospectus, summarizes the material terms and provisions of the
warrants that we may offer under this prospectus, which may consist
of warrants to purchase common stock and/or preferred stock in one
or more series. Warrants may be offered independently or together
with common stock and/or preferred stock offered by any prospectus
supplement or free writing prospectus, and may be attached to or
separate from those securities. While the terms we have summarized
below will generally apply to any future warrants we may offer
under this prospectus, we will describe the particular terms of any
warrants that we may offer in more detail in the applicable
prospectus supplement or free writing prospectus. The terms of any
warrants we offer under a prospectus supplement or free writing
prospectus may differ from the terms we describe
below.
In the event that we issue warrants, we will issue the warrants
under a warrant agreement which we will enter into with a warrant
agent to be selected by us. Forms of these warrant agreements and
forms of the warrant certificates representing the warrants, and
the complete warrant agreements and forms of warrant certificates
containing the terms of the warrants being offered, will be filed
as exhibits to the registration statement of which this prospectus
is a part or will be incorporated by reference from reports that we
file with the SEC. We use the term “warrant agreement”
to refer to any of these warrant agreements. We use the term
“warrant agent” to refer to the warrant agent under any
of these warrant agreements. The warrant agent will act solely as
an agent of ours in connection with the warrants and will not act
as an agent for the holders or beneficial owners of the
warrants.
The following summaries of material provisions of the warrants and
the warrant agreements are subject to, and qualified in their
entirety by reference to, all the provisions of the warrant
agreement applicable to a particular series of warrants. We urge
you to read the applicable prospectus supplements or free writing
prospectus related to the warrants that we sell under this
prospectus, as well as the complete warrant agreements that contain
the terms of the warrants.
General
We will describe in the applicable prospectus supplement or free
writing prospectus the terms relating to a series of warrants. If
warrants for the purchase of common stock or preferred stock are
offered, the prospectus supplement or free writing prospectus will
describe the following terms, to the extent
applicable:
●
the
offering price and the aggregate number of warrants
offered;
●
the
total number of shares that can be purchased if a holder of the
warrants exercises them and, in the case of warrants for preferred
stock, the designation, total number and terms of the series of
preferred stock that can be purchased upon exercise;
●
the
designation and terms of any series of preferred stock with which
the warrants are being offered and the number of warrants being
offered with each share of common stock or preferred
stock;
●
the
date on and after which the holder of the warrants can transfer
them separately from the related common stock or series of
preferred stock;
●
the
number of shares of common stock or preferred stock that can be
purchased if a holder exercises the warrant and the price at which
such common stock or preferred stock may be purchased upon
exercise, including, if applicable, any provisions for changes to
or adjustments in the exercise price and in the securities or other
property receivable upon exercise;
●
the
terms of any rights to redeem or call, or accelerate the expiration
of, the warrants;
●
the
date on which the right to exercise the warrants begins and the
date on which that right expires;
●
federal
income tax consequences of holding or exercising the warrants;
and
●
any
other specific terms, preferences, rights or limitations of, or
restrictions on, the warrants.
Exercise of Warrants
Each holder of a warrant is entitled to purchase the number of
shares of common stock or preferred stock, as the case may be, at
the exercise price described in the applicable prospectus
supplement or free writing prospectus. After the close of business
on the day when the right to exercise terminates (or a later date
if we extend the time for exercise), unexercised warrants will
become void.
A holder of warrants may exercise them by following the general
procedure outlined below:
●
delivering
to the warrant agent the payment required by the applicable
prospectus supplement or free writing prospectus to purchase the
underlying security;
●
properly
completing and signing the reverse side of the warrant certificate
representing the warrants; and
●
delivering
the warrant certificate representing the warrants to the warrant
agent within five business days of the warrant agent receiving
payment of the exercise price.
If you comply with the procedures described above, your warrants
will be considered to have been exercised when the warrant agent
receives payment of the exercise price, subject to the transfer
books for the securities issuable upon exercise of the warrant not
being closed on such date. After you have completed those
procedures and subject to the foregoing, we will, as soon as
practicable, issue and deliver to you the common stock or preferred
stock that you purchased upon exercise. If you exercise fewer than
all of the warrants represented by a warrant certificate, a new
warrant certificate will be issued to you for the unexercised
amount of warrants. Holders of warrants will be required to pay any
tax or governmental charge that may be imposed in connection with
transferring the underlying securities in connection with the
exercise of the warrants.
Amendments and Supplements to the Warrant Agreements
We may amend or supplement a warrant agreement without the consent
of the holders of the applicable warrants to cure ambiguities in
the warrant agreement, to cure or correct a defective provision in
the warrant agreement, or to provide for other matters under the
warrant agreement that we and the warrant agent deem necessary or
desirable, so long as, in each case, such amendments or supplements
do not materially adversely affect the interests of the holders of
the warrants.
Warrant Adjustments
Unless the applicable prospectus supplement or free writing
prospectus states otherwise, the exercise price of, and the number
of securities covered by, a common stock warrant or preferred stock
warrant will be adjusted proportionately if we subdivide or combine
our common stock or preferred stock, as applicable. In addition,
unless the prospectus supplement or free writing prospectus states
otherwise, if we, without receiving payment:
●
issue
capital stock or other securities convertible into or exchangeable
for common stock or preferred stock, or any rights to subscribe
for, purchase or otherwise acquire any of the foregoing, as a
dividend or distribution to holders of our common stock or
preferred stock;
●
pay
any cash to holders of our common stock or preferred stock other
than a cash dividend paid out of our current or retained earnings
or other than in accordance with the terms of the preferred
stock;
●
issue
any evidence of our indebtedness or rights to subscribe for or
purchase our indebtedness to holders of our common stock or
preferred stock; or
●
issue
common stock or preferred stock or additional stock or other
securities or property to holders of our common stock or preferred
stock by way of spinoff, split-up, reclassification, combination of
shares or similar corporate rearrangement,
then the holders of common stock warrants and preferred stock
warrants, as applicable, will be entitled to receive upon exercise
of the warrants, in addition to the securities otherwise receivable
upon exercise of the warrants and without paying any additional
consideration, the amount of stock and other securities and
property such holders would have been entitled to receive had they
held the common stock or preferred stock, as applicable, issuable
under the warrants on the dates on which holders of those
securities received or became entitled to receive such additional
stock and other securities and property.
Except as stated above or as otherwise set forth in the applicable
prospectus supplement or free writing prospectus, the exercise
price and number of securities covered by a common stock warrant
and preferred stock warrant, and the amounts of other securities or
property to be received, if any, upon exercise of those warrants,
will not be adjusted or provided for if we issue those securities
or any securities convertible into or exchangeable for those
securities, or securities carrying the right to purchase those
securities or securities convertible into or exchangeable for those
securities.
Holders of common stock warrants and preferred stock warrants may
have additional rights under the following
circumstances:
●
certain reclassifications, capital reorganizations
or changes of the common stock or preferredstock, as applicable;
●
certain
share exchanges, mergers, or similar transactions involving us and
which result in changes of the common stock or preferred stock, as
applicable; or
●
certain
sales or dispositions to another entity of all or substantially all
of our property and assets.
If one of the above transactions occurs and holders of our common
stock or preferred stock are entitled to receive stock, securities
or other property with respect to or in exchange for their
securities, the holders of the common stock warrants and preferred
stock warrants then outstanding, as applicable, will be entitled to
receive upon exercise of their warrants the kind and amount of
shares of stock and other securities or property that they would
have received upon the applicable transaction if they had exercised
their warrants immediately before the transaction.
DESCRIPTION OF OUR
UNITS
This section outlines some of the provisions of the units and the
unit agreements. This information may not be complete in all
respects and is qualified entirely by reference to the unit
agreement with respect to the units of any particular series. The
specific terms of any series of units will be described in the
applicable prospectus supplement or free writing prospectus. If so
described in a particular prospectus supplement or free writing
prospectus, the specific terms of any series of units may differ
from the general description of terms presented below.
As specified in the applicable prospectus supplement, we may issue
units consisting of one or more shares of common stock, shares of
preferred stock, warrants or any combination of such
securities.
The applicable prospectus supplement will specify the following
terms of any units in respect of which this prospectus is being
delivered:
●
the
terms of the units and of any of the shares of common stock, shares
of preferred stock or warrants comprising the units, including
whether and under what circumstances the securities comprising the
units may be traded separately;
●
a
description of the terms of any unit agreement governing the
units;
●
if
appropriate, a discussion of material U.S. federal income tax
considerations; and
●
a
description of the provisions for the payment, settlement, transfer
or exchange of the units.
DESCRIPTION OF CERTAIN PROVISIONS OF NEVADA LAW
AND
OUR ARTICLES OF INCORPORATION AND BYLAWS
Transactions with Interested Persons
Under the Nevada Revised Statutes, or NRS, a transaction with the
Company (i) in which a Company director or officer has a direct or
indirect interest, or (ii) involving another corporation, firm or
association in which one or more of the Company’s directors
or officers are directors or officers of the corporation, firm or
association or have a financial interest in the corporation firm or
association, is not void or voidable solely because of the
director’s or officer’s interest or common role in the
transaction if any one of the following circumstances
exists:
●
the
fact of the common directorship, office or financial interest is
known to the board of directors or a committee of the board of
directors and a majority of disinterested directors on the board of
directors (or on the committee) authorized, approved or ratified
the transaction;
●
the
fact of the common directorship, office or financial interest is
known to the stockholders and disinterested stockholders holding a
majority of the shares held by disinterested stockholders
authorized, approved or ratified the transaction;
●
the
fact of the common directorship, office or financial interest is
not known to the director or officer at the time the transaction is
brought to the board of directors for action; or
●
the
transaction was fair to the Company at the time it is authorized or
approved.
Control Share Acquisition Provisions
Nevada law precludes an acquirer of the shares of a Nevada
corporation who crosses one of three ownership thresholds (20%, 33
1/3% or 50%) from obtaining voting rights with respect to those
shares unless the disinterested holders of a majority of the shares
of the Company held by disinterested stockholders vote to accord
voting power to those shares.
Combinations with Interested Stockholders
Under the NRS, except under certain circumstances, a corporation is
not permitted to engage in a business combination with any
“interested stockholder” for a period of two years
following the date such stockholder became an interested
stockholder. An “interested stockholder” is
a person or entity who owns 10% or more of the outstanding shares
of voting stock. Nevada permits a corporation to opt out
of the application of these business combination provisions by so
providing in the articles of incorporation or
bylaws. The Company’s Bylaws contain a provision
opting out of the application of these business combination
provisions.
PLAN
OF DISTRIBUTION
We may sell the securities described in this prospectus to or
through underwriters or dealers, through agents, or directly to one
or more purchasers. A prospectus supplement or supplements (and any
related free writing prospectus that we may authorize to be
provided to you) will describe the terms of the offering of the
securities, including, to the extent applicable:
●
the
name or names of any underwriters or agents, if
applicable;
●
the
purchase price of the securities and the proceeds we will receive
from the sale;
●
any
over-allotment options under which underwriters may purchase
additional securities from us;
●
any
agency fees or underwriting discounts and other items constituting
agents’ or underwriters’ compensation;
●
any
public offering price;
●
any
discounts or concessions allowed or reallowed or paid to dealers;
and
●
any
securities exchange or market on which the securities may be
listed.
Only underwriters named in a prospectus supplement are underwriters
of the securities offered by the prospectus
supplement.
If underwriters are used in the sale, they will acquire the
securities for their own account and may resell the securities from
time to time in one or more transactions at a fixed public offering
price or at varying prices determined at the time of sale. The
obligations of the underwriters to purchase the securities will be
subject to the conditions set forth in the applicable underwriting
agreement. We may offer the securities to the public through
underwriting syndicates represented by managing underwriters or by
underwriters without a syndicate. Subject to certain conditions,
the underwriters will be obligated to purchase all of the
securities offered by the prospectus supplement. Any public
offering price and any discounts or concessions allowed or
reallowed or paid to dealers may change from time to time. We may
use underwriters with whom we have a material relationship. We will
describe in the prospectus supplement that names the underwriter,
the nature of any such relationship.
We may sell securities directly or through agents we designate from
time to time. We will name any agent involved in the offering and
sale of securities, and we will describe any commissions we will
pay the agent in the prospectus supplement. Unless the prospectus
supplement states otherwise, our agent will act on a best-efforts
basis for the period of its appointment.
We may authorize agents or underwriters to solicit offers by
certain types of institutional investors to purchase securities
from us at the public offering price set forth in the prospectus
supplement pursuant to delayed delivery contracts providing for
payment and delivery on a specified date in the future. We will
describe the conditions to these contracts and the commissions we
must pay for solicitation of these contracts in the prospectus
supplement.
We may provide agents and underwriters with indemnification against
civil liabilities related to this offering, including liabilities
under the Securities Act of 1933, as amended
(the Securities
Act), or contribution with
respect to payments that the agents or underwriters may make with
respect to these liabilities. Agents and underwriters may engage in
transactions with, or perform services for, us in the ordinary
course of business.
Any underwriter may engage in overallotment, stabilizing
transactions, short covering transactions and penalty bids in
accordance with Regulation M under the Exchange Act. Overallotment
involves sales in excess of the offering size, which create a short
position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a
specified maximum. Short covering transactions involve purchases of
the securities in the open market after the distribution is
completed to cover short positions. Penalty bids permit the
underwriters to reclaim a selling concession from a dealer when the
securities originally sold by the dealer are purchased in a
covering transaction to cover short positions. Those activities may
cause the price of the securities to be higher than it would
otherwise be. If commenced, the underwriters may discontinue any of
the activities at any time.
Any underwriters who are qualified market makers on the NASDAQ
Capital Market may engage in passive market making transactions in
accordance with Rule 103 of Regulation M during the business day
prior to the pricing of the offering, before the commencement of
offers or sales of the securities. Passive market makers must
comply with applicable volume and price limitations and must be
identified as passive market makers. In general, a passive market
maker must display its bid at a price not in excess of the highest
independent bid for such security; if all independent bids are
lowered below the passive market maker’s bid, however, the
passive market maker’s bid must then be lowered when certain
purchase limits are exceeded.
LEGAL MATTERS
The validity of the securities offered by this prospectus will be
passed upon by Disclosure Law Group, a Professional Corporation,
San Diego, California (DLG). Partners of DLG beneficially own an aggregate
of 65,987 registered and/or restricted shares of our common
stock.
EXPERTS
The financial statements of the Company incorporated in this
prospectus by reference to the Annual Report on Form 10-K for the
fiscal year ended March 31, 2016 have been audited by OUM & Co.
LLP, an independent registered public accounting firm, as set forth
in their report thereon.
WHERE YOU CAN FIND
MORE INFORMATION
We are a public company and file annual, quarterly and special
reports, proxy statements and other information with the SEC. You
may read and copy any document we file at the SEC’s public
reference room at 100 F Street, NE, Washington, D.C. 20549. You can
request copies of these documents by writing to the SEC and paying
a fee for the copying cost. Please call the SEC at 1-800-SEC-0330
for more information about the operation of the public reference
room. Our SEC filings are also available, at no charge, to the
public at the SEC’s website at
http://www.sec.gov.
INCORPORATION
OF CERTAIN INFORMATION BY
REFERENCE
The following documents filed by us with the SEC are incorporated
by reference in this prospectus:
●
Annual
Report on Form 10-K for the fiscal year ended March 31, 2016, filed
on June 24, 2016;
●
Quarterly
Report on Form 10-Q for the quarter ended June 30, 2016, filed on
August 12, 2016;
●
Quarterly
Report on Form 10-Q for the quarter ended September 30, 2016, filed
on November 14, 2016;
●
Quarterly
Report on Form 10-Q for the quarter ended December 31, 2016, filed
on February 13, 2017;
●
Current
Report on Form 8-K filed on May 16, 2016;
●
Current
Report on Form 8-K filed on June 22, 2016;
●
Current
Report on Form 8-K filed on August 17, 2016;
●
Current
Report on Form 8-K filed on September 27, 2016;
●
Current
Report on Form 8-K filed on December 14, 2016;
●
Current
Report on Form 8-K filed on March 29, 2017; and
●
The
description of our common stock contained in the Registration
Statement on Form 8-A filed pursuant to Section 12(b) of the
Exchange Act on May 3, 2016, including any amendment or report
filed with the SEC for the purpose of updating this
description.
We also incorporate by reference all documents we file pursuant to
Section 13(a), 13(c), 14 or 15 of the Exchange Act (other than any
portions of filings that are furnished rather than filed pursuant
to Items 2.02 and 7.01 of a Current Report on Form 8-K) after the
date of the initial registration statement of which this prospectus
is a part and prior to effectiveness of such registration
statement. All documents we file in the future pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of
this prospectus and prior to the termination of the offering are
also incorporated by reference and are an important part of this
prospectus.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or
superseded for the purposes of this registration statement to the
extent that a statement contained herein or in any other
subsequently filed document which also is or deemed to be
incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part
of this registration statement.
We will provide to each person, including any beneficial owner, to
whom a prospectus is delivered, a copy of any or all of the
information that has been incorporated by reference in the
prospectus but not delivered with the prospectus. You may request a
copy of these filings, excluding the exhibits to such filings which
we have not specifically incorporated by reference in such filings,
at no cost, by writing to or calling us at:
VistaGen Therapeutics, Inc.
Attn: Corporate Secretary
343 Allerton Avenue
South San Francisco, CA 94080
(650) 577-3600
This prospectus is part of a registration statement we filed with
the SEC. You should only rely on the information or representations
contained in this prospectus and any accompanying prospectus
supplement. We have not authorized anyone to provide information
other than that provided in this prospectus and any accompanying
prospectus supplement. We are not making an offer of the securities
in any state where the offer is not permitted. You should not
assume that the information in this prospectus or any accompanying
prospectus supplement is accurate as of any date other than the
date on the front of the document.
-23-
1,371,430 Shares
Series A1 Warrants to Purchase up to 1,338,931 Shares of Common
Stock
Series A2 Warrants to Purchase up to 503,641 Shares of Common
Stock
_______________________________
Prospectus Supplement
_______________________________
Oppenheimer & Co.
August 31,
2017