Business context and reporting period
VistaGen Therapeutics, Inc. is a clinical-stage biopharmaceutical company developing treatments for anxiety, depression and other central nervous system disorders. This Form 10-K reports the fiscal year ended March 31, 2020, with comparison to the year ended March 31, 2019. The filing also presents fiscal Q4 results for the three months ended March 31, 2020; it is not a calendar-year 2019 fourth-quarter report.
The company had no approved products and generated no product sales. Its principal programs were PH94B, being prepared for Phase 3 development for social anxiety disorder (SAD); PH10, being prepared for Phase 2b development for major depressive disorder (MDD); and AV-101, whose Phase 2 adjunctive MDD trial did not meet its primary endpoint. VistaStem’s stem-cell platform and CardioSafe 3D assay were additional, earlier-stage activities.
Financial performance and liquidity
| Metric | FY ended March 31, 2020 | FY ended March 31, 2019 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $13.37 million | $17.10 million |
| General and administrative expense | $7.43 million | $7.46 million |
| Total operating expenses / operating loss | $20.80 million | $24.56 million |
| Net loss | $20.77 million | $24.59 million |
| Net loss attributable to common stockholders | $22.04 million | $25.73 million |
| Basic and diluted loss per share | $0.50 | $0.90 |
| Net cash used in operating activities | $15.76 million | $14.53 million |
For fiscal Q4 2020, the filing reports an operating loss of $3.26 million and net loss of $3.27 million; R&D expense was $1.84 million and G&A expense was $1.42 million. No meaningful operating margin is available because the company reported no revenue.
R&D expense declined year over year primarily because fiscal 2019 included $4.25 million of noncash expense for the PH94B and PH10 licenses. Fiscal 2020 included continued clinical, manufacturing and regulatory spending. G&A was broadly unchanged; fiscal 2020 included $826,900 of noncash warrant-modification expense.
Cash and cash equivalents fell to $1.36 million at March 31, 2020, from $13.10 million a year earlier. Fiscal 2020 financing activities provided $4.01 million, versus $17.42 million in fiscal 2019. Current assets were $1.58 million and current liabilities $2.77 million, implying negative working capital of approximately $1.19 million. Total liabilities were $11.50 million, including $4.03 million of operating lease obligations, $5.01 million of accrued Series B preferred dividends, and a $56,500 current insurance-premium financing note. Stockholders’ deficit was $5.73 million. The Series B preferred stock accrues a 10% annual in-kind dividend.
The auditor issued an unmodified opinion on the financial statements but highlighted substantial doubt about the company’s ability to continue as a going concern. Management likewise stated that available resources, including financing received or expected after year-end, would not fund planned operations for the following 12 months without additional financing.
Material changes and notable developments
- AV-101’s Phase 2 Elevate Study in 199 patients with MDD failed to differentiate from placebo on its primary endpoint. Management attributed this potentially to insufficient brain concentrations of the active metabolite; that explanation remains a hypothesis.
- Preclinical studies reported that probenecid combined with AV-101 increased brain concentrations of AV-101 sevenfold and its active metabolite 7-Cl-KYNA 35-fold. Further preclinical work was planned; these results do not establish clinical efficacy.
- PH94B’s earlier Phase 2 SAD study showed statistically significant reductions in laboratory-induced anxiety measures. The company was preparing for Phase 3 and proposed an exploratory, approximately 30-person open-label study for adjustment disorder with anxiety related to COVID-19.
- PH10’s exploratory Phase 2A study (30 patients) reported a statistically significant result and effects sustained over eight weeks. The company planned supporting nonclinical studies and targeted an IND submission in the first half of 2021, followed by a possible Phase 2b start in the second half of 2021.
- In June 2020, after fiscal year-end, VistaGen licensed PH94B in Greater China, South Korea and Southeast Asia to EverInsight. Terms included a $5.0 million upfront payment, expected net cash proceeds of approximately $4.475 million, potential milestone payments up to $172 million, and royalties on any territory sales. Milestones and royalties are contingent and not assured.
- After year-end, the company reported $2.84 million of proceeds from additional Lincoln Park share sales through June 26, 2020, a $50,000 private placement, and a $224,000 potentially forgivable Paycheck Protection Program loan. The loan’s forgiveness was not assured.
Outlook, risks and unusual items
Management planned to advance PH94B toward Phase 3 for SAD, pursue PH10 Phase 2b preparation, and conduct additional AV-101/probenecid preclinical work. These plans were subject to sufficient financing. The company expected continuing losses and rising development costs and had no product revenue or predictable timeline to profitability.
- Funding and dilution: The company warned it needs substantial additional capital. Equity financing may dilute shareholders; debt or collaborations may impose restrictions or require surrendering valuable rights. Lincoln Park’s agreement permits up to $10.25 million of share purchases over 24 months, subject to conditions, and sales increase share count.
- Clinical and regulatory risk: All candidates require further studies and regulatory review; early-stage results may not predict later outcomes. Fast Track designations do not assure faster approval or success.
- COVID-19 and supply: The pandemic had delayed deliveries of active pharmaceutical ingredients and could disrupt trials, suppliers, CROs, employees, financing access and operations.
- Manufacturing and collaboration dependence: The company relies on third parties for clinical manufacturing and research, with no long-term or redundant supply arrangements described. Delays or compliance failures could interrupt development.
- Controls: Management identified material weaknesses in internal control over financial reporting related to insufficient segregation of duties and accounting software that may allow changes to prior periods without an adequate audit trail. Management concluded internal control over financial reporting was ineffective, although disclosure controls were considered effective.
- Listing and capital structure: Nasdaq had notified the company of deficiencies in minimum bid price and market value of listed securities, with cure deadlines in 2020. The filing also discloses substantial outstanding options, warrants and convertible preferred stock that may contribute to dilution.
- Unusual noncash items: Fiscal 2019 R&D included the $4.25 million license charge; fiscal 2020 G&A included $826,900 of warrant-modification expense. The reported Series B dividend deduction is noncash and payable in common shares upon conversion.
Important facts for investors to verify
- Current cash runway, burn rate and financing needs, including actual receipt and use of the EverInsight upfront payment and any subsequent Lincoln Park proceeds.
- Nasdaq listing compliance status and the effect of further share issuance, warrants, options and preferred-stock conversions on dilution.
- Full results and next-step plans for PH94B Phase 3, PH10 Phase 2b and AV-101 with probenecid; distinguish company hypotheses and preclinical findings from clinical evidence.
- Whether COVID-19-related supply or trial delays persisted, and whether backup manufacturing capacity was secured.
- Progress in remediating internal-control weaknesses and the status of any PPP loan forgiveness.