VistaGen Therapeutics, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended March 31, 2019. This is an annual filing, not a standalone fourth-quarter report; unaudited Q4 results are identified below. VistaGen is a clinical-stage CNS biopharmaceutical company with no approved products or product-sales revenue.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $17.1 million | $7.8 million |
| General and administrative expense | $7.5 million | $6.4 million |
| Operating loss | $24.6 million | $14.2 million |
| Net loss | $24.6 million | $14.3 million |
| Net loss attributable to common stockholders per share | $0.90 | $1.12 |
| Net cash used in operating activities | $14.5 million | $9.1 million |
- FY2019 R&D increase reflected the ELEVATE study and other AV-101 work, plus $4.25 million of noncash expense for acquiring PH94B and PH10 licenses.
- FY2019 net loss includes substantial noncash items, including $3.44 million in stock-based compensation and the $4.25 million license-related charge. No operating margin is meaningful given the absence of revenue.
- Cash and cash equivalents were $13.1 million at March 31, 2019, versus $10.4 million a year earlier. Current assets were $13.7 million and current liabilities $2.8 million; however, management said cash was insufficient to fund planned operations for the 12 months after the financial statements were issued without additional financing.
- Total liabilities were $6.9 million, including $57,000 of current notes payable and $9,000 of capital lease obligations. Accrued Series B preferred dividends were $3.75 million; Series B accrues dividends at 10% annually, payable in common shares on conversion. The filing reports limited stockholders’ equity of $7.1 million.
- Financing provided $17.4 million of cash in FY2019, including approximately $10.4 million net proceeds from a February–March 2019 public offering, $5.76 million from a private placement, and $0.81 million from another private placement. Common shares outstanding rose from 23.1 million to 42.8 million during the year.
- Unaudited Q4 FY2019 net loss was $5.7 million and loss attributable to common stockholders was $6.0 million, or $0.17 per share.
Material changes and business developments
- R&D expense more than doubled year over year, and operating cash use increased by about 60%, primarily as the company advanced AV-101 and added PH94B and PH10.
- VistaGen obtained exclusive worldwide licenses to PH94B, a potential on-demand social anxiety disorder treatment, and PH10, a potential MDD treatment, in exchange for 2.56 million common shares valued at $4.25 million, with potential milestone, royalty and support-payment obligations.
- AV-101 was in Phase 2 development for MDD in the ELEVATE add-on study. The company expected top-line results in the second half of 2019. The FDA had granted AV-101 Fast Track designation for adjunctive MDD and neuropathic pain development.
- PH94B was being prepared for pivotal Phase 3 development. Starting the first pivotal study in the first half of 2020 was conditional on obtaining sufficient financing. PH10 Phase 2b development was planned for the second half of 2020, also subject to financing.
- After year-end, VistaGen disclosed that AV-101 did not significantly separate from placebo on the primary endpoint in a small NIMH Phase 2 monotherapy study in severe treatment-resistant depression. It was reportedly well tolerated; the company distinguished that study from ELEVATE, which tests AV-101 as an add-on to standard antidepressants.
Outlook, risks and unusual items
- Going concern: The auditor’s report and management disclosed substantial doubt about VistaGen’s ability to continue as a going concern, absent additional funding. The financial statements contain no adjustments for a possible adverse outcome. Management planned to seek equity financing, collaborations and grants, but none was assured.
- Development and funding risks: All key drug candidates remain investigational and require further clinical testing and regulatory approval. Trial outcomes, timelines, financing availability, manufacturing supply and third-party CRO performance are material uncertainties. Failure to raise capital could force delays, reductions or discontinuation of programs.
- Unusual items and dilution: License acquisitions were paid for with shares and expensed immediately. Series B dividends are noncash but reduce earnings attributable to common stockholders. Outstanding options, warrants and convertible preferred stock create potential dilution; the filing listed 21.45 million warrants outstanding at year-end.
- Controls: Management concluded internal control over financial reporting was ineffective due to inadequate segregation of duties and accounting software that may permit unauthorized or untraceable changes. Disclosure controls were assessed as effective. The auditor did not provide an opinion on internal-control effectiveness.
- Listing risk after year-end: Nasdaq notified the company on June 17, 2019 that it did not meet the $1.00 minimum bid-price requirement; the initial compliance period ran through December 16, 2019. Delisting could impair liquidity and access to capital.
- Other risks include competition, uncertain reimbursement and commercialization prospects, reliance on third-party manufacturers without long-term or redundant supply arrangements, patent and licensing risks, and potential delays from drug-device combination-product regulation for PH94B and PH10. No material legal proceedings were reported.
Key facts for investors to verify
- Whether subsequent financing or partnering provided sufficient runway, and how it affected share count, dilution and planned trials.
- The actual ELEVATE top-line results and whether they support further AV-101 development after the negative NIMH monotherapy result.
- Whether PH94B Phase 3 and PH10 Phase 2b studies began on schedule and were adequately funded.
- Progress in remediating the disclosed material weaknesses in financial reporting controls.
- Nasdaq bid-price compliance and the status of preferred-stock conversion rights, accrued dividends and outstanding warrants.