VistaGen Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2011 (fiscal 2012 Q2). The company is a development-stage biotechnology business focused on stem-cell-based drug rescue and cell therapy, and AV-101 development. The May 2011 merger made VistaGen the accounting acquirer; the filing’s financial statements reflect a reverse recapitalization and include the Nevada entity from the merger date.
Financial performance and liquidity
| Metric | Three months ended Sep. 30, 2011 | Six months ended Sep. 30, 2011 | Comparable 2010 period |
|---|---|---|---|
| Revenue | $316,288 | $870,904 | $399,576 quarter; $1,133,497 six months |
| Operating expenses | $2,122,105 | $4,276,602 | $1,261,634 quarter; $2,456,524 six months |
| Operating loss | $1,805,817 | $3,405,698 | $862,058 quarter; $1,323,027 six months |
| Net loss | $2,256,324 | $4,667,401 | $1,571,703 quarter; $2,553,330 six months |
| Basic and diluted loss per share | $(0.15) | $(0.35) | $(0.30) quarter; $(0.49) six months |
| Operating cash flow | Not separately presented | $(1,788,733) | $(768,553) six months |
- Revenue consisted of grant revenue; the company reported no collaboration revenue in either comparison period. Gross margin is not presented and is not meaningful for this development-stage, grant-funded business.
- At September 30, cash and cash equivalents were $94,523; current assets were $431,952 and current liabilities were $6,195,054, a working-capital deficit of approximately $5.76 million. Total liabilities were $9,260,965. Stockholders’ deficit was $8,723,675.
- Six-month investing cash outflow was $7,814 and financing cash inflow was $1,751,727. Cash declined by $44,820 over the six months.
- Convertible promissory notes, net, were $3,052,977 at quarter-end, plus $788,770 of accrued interest. The $4 million Platinum Note bears 10% stated interest, matures June 30, 2012, and may be extended by the holder for one year; its effective annual rate after discount amortization was 17.3%.
Changes versus prior comparable periods
- Revenue fell 21% for the quarter and 23% for the six months. Management attributed the decrease to rescheduled grant-funded work and the CIRM grant winding down/completing, partly offset by other NIH subcontract revenue.
- Quarterly R&D expense rose to $1.23 million from $692,000; six-month R&D rose to $2.26 million from $1.37 million. Drivers included grant-application costs, AV-101 development, stem-cell collaborations and technology licenses.
- Quarterly G&A increased to $895,000 from $570,000; six-month G&A increased to $2.02 million from $1.09 million, reflecting additional staffing, public-company legal and accounting costs, consulting and business-development activity. Six-month expense also included $185,000 of compensation expense from cancellation of officers’ notes receivable.
- Net losses increased to $2.26 million for the quarter and $4.67 million for the six months. Six-month operating cash use more than doubled year over year.
- In the May merger and related transactions, convertible notes and preferred stock converted into common shares. Common shares outstanding were 15,241,904 at September 30, versus 5,241,110 at March 31; the company also recorded a reverse recapitalization and a two-for-one share split.
Outlook, risks and notable items
- Management stated that available cash, including post-quarter proceeds described in the filing, would not fund operations for the next 12 months. It estimated cash expenditures of approximately $7 million over that period and expected to seek private debt or equity financing, collaborations, license fees and government grants.
- Failure to obtain adequate financing could require reducing, delaying or discontinuing research and development and could threaten the company’s ability to continue as a going concern. The statements contain no adjustments for this uncertainty; substantial dilution may result from future securities issuance.
- The company planned to begin an AV-101 Phase 1b study before year-end 2011. A Phase 2 study was planned for Q4 2012, subject to additional grant funding and FDA approval. These were plans, not assurances.
- After quarter-end, a $500,000 placement-related note receivable was restructured, with payments through September 2012; the first $50,000 payment was reported received. By November 4, discounted warrant exercises had generated $849,818 in cash, and follow-on unit sales had generated $86,249 in gross proceeds. Additional shares were issued in warrant exercises, including exercises in lieu of payment of certain indebtedness.
- The filing identifies clinical and regulatory outcomes, financing availability, competition, and successful development and commercialization as risks. Management reported disclosure controls and procedures were effective and no material change in internal control during the quarter.
Important facts for investors to verify
- Cash received, outstanding commitments and actual runway after the reported post-quarter financing activity; compare with the stated $7 million expected next-12-month cash expenditures.
- Collection schedule and collectability of the restructured $500,000 note receivable, and whether scheduled payments were made.
- Terms, dilution and proceeds from discounted warrant exercises and follow-on unit sales, including the resulting fully diluted share count.
- Platinum Note conversion, maturity-extension and repayment terms, and the effect of accrued interest and discount amortization.
- AV-101 clinical-study timing, required funding and FDA approvals, and the status and economics of grant support as the CIRM award ended.