Business context and reporting period
VistaGen Therapeutics, Inc. filed this Form 10-Q for the three months ended June 30, 2018, its fiscal 2019 first quarter. The clinical-stage biopharmaceutical company is developing AV-101, a Phase 2 candidate for major depressive disorder and other central nervous system conditions. Its smaller VistaStem business pursues stem-cell-based drug rescue and regenerative medicine programs. The company had no approved products and no recurring product revenue.
Financial results and liquidity
| Metric | Quarter ended June 30, 2018 | Prior-year quarter |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $2.744 million | $1.096 million |
| General and administrative expense | $1.466 million | $1.164 million |
| Total operating expenses / operating loss | $4.210 million | $2.261 million |
| Net loss | $4.215 million | $2.265 million |
| Net loss attributable to common stockholders | $4.488 million | $2.513 million |
| Loss per common share, basic and diluted | $0.20 | $0.28 |
| Net cash used in operating activities | $3.135 million | $2.134 million |
- Cash and cash equivalents were $7.231 million at June 30, down from $10.378 million at March 31. Operating activities used $3.135 million; investing activities used $35,400; financing activities provided $23,600.
- Total assets were $8.255 million and stockholders’ equity was $3.222 million at June 30, compared with $11.278 million and $6.917 million, respectively, at March 31.
- Current liabilities totaled $1.871 million. Current notes payable were $181,100; capital lease obligations totaled $11,300. Accrued Series B preferred dividends were $2.882 million, a non-current liability. The filing reports no off-balance-sheet arrangements.
- Margins are not meaningful because the company reported no revenue. Accumulated deficit was $160.8 million.
Material changes versus the prior comparable period
- R&D expense rose about 150%, principally because of the ELEVATE Phase 2 MDD study and manufacturing additional AV-101 supplies. G&A expense rose about 26%, driven largely by higher noncash stock compensation and professional-services-related costs.
- Net loss increased by about $1.949 million, while cash used in operations increased by about $1.001 million.
- Loss per share improved from $0.28 to $0.20 despite the larger net loss, as weighted-average shares rose from 9.03 million to 22.99 million.
- Common shares outstanding increased from 23,068,280 at March 31 to 23,213,280 at June 30. By August 14, the company reported 25,815,615 shares issued and outstanding.
Outlook, risks, contingencies and unusual items
- Going concern and financing: Management said that, without additional financing, the company probably would not have sufficient resources for the 12 months following issuance of the financial statements, raising substantial doubt about its ability to continue as a going concern. After quarter-end, it raised $3.36 million through a private placement completed between July 1 and August 13; including $50,000 raised during the quarter, the filing describes $3.41 million of private-placement proceeds. The financing included common shares and warrants and may dilute existing stockholders. Management plans to seek further financing, but gives no assurance that it will be available on acceptable terms or when needed.
- Development outlook: ELEVATE, a Phase 2 study of AV-101 as adjunctive MDD treatment, began in the first quarter of 2018. Management anticipated top-line results by the end of the first half of 2019. The company expected losses and negative operating cash flows to continue; its risk disclosures said AV-101 was unlikely to receive regulatory approval before at least 2021.
- Program and commercial risks: Results from clinical studies may not establish safety or efficacy; trials, manufacturing, regulatory review or patient recruitment may be delayed. The company depends on outside clinical and manufacturing providers, has no commercial products, and may need collaborators or further capital to advance development. Competition, intellectual-property challenges and the ability to obtain regulatory approval are material risks.
- Capital structure: At June 30, 16.64 million common-stock warrants were outstanding, and 5.30 million stock options were outstanding. Preferred-stock dividends accrue at 10% on Series B Preferred. Subsequent to quarter-end, the company also granted options covering 860,000 shares at $1.27 per share.
- Controls and legal matters: Management concluded disclosure controls were effective. Two previously identified material weaknesses in internal control over financial reporting—segregation of duties and accounting-software functionality—remained unremediated, with no material change reported during the quarter. The filing reported no legal proceedings.
- Other items: Tenant improvements were under construction; the landlord was obligated to reimburse up to $163,600 of eligible costs. The company reported no material contingencies requiring a quantified liability beyond those disclosed in the filing.
Important facts for investors to verify
- Whether additional financing was secured after the reported private placement, and how the cash balance and expected cash runway changed.
- ELEVATE enrollment, execution, costs and timing, and eventual clinical results; also progress and findings from the NIMH and Baylor studies.
- The scale of future R&D spending, AV-101 manufacturing needs and any additional studies required by regulators.
- Potential dilution from outstanding warrants, options, preferred-stock conversion rights and further equity financing.
- Whether the company remediated its material weaknesses in financial reporting and whether adequate accounting resources and systems are in place.