Vistagen Therapeutics, Inc. — Form 10-Q Summary
Business context and period. Development-stage biotechnology company focused on stem-cell-based drug rescue and cell therapy, and AV-101, a drug candidate for neuropathic pain. This report covers the three months ended June 30, 2012, the company’s fiscal first quarter. AV-101 was in a Phase 1b study; the company expected to complete the study during 2012. The company had no sustainable commercial revenues.
Financial results and position
| Metric | Three months ended June 30, 2012 | Prior-year period |
|---|---|---|
| Revenue | $200,400 | $554,600 |
| Research and development expense | $866,300 | $1,027,900 |
| General and administrative expense | $1,055,300 | $1,126,600 |
| Operating loss | $1,721,200 | $1,599,900 |
| Net loss | $1,825,900 | $2,411,100 |
| Basic and diluted loss per share | $0.11 | $0.22 |
| Cash used in operating activities | $296,200 | $1,086,500 |
Revenue was primarily NIH grant revenue. At June 30, cash and cash equivalents were $31,700, down from $81,000 at March 31. Current assets were $542,900 and current liabilities were $4,385,500, a working-capital deficit of approximately $3.84 million. Total liabilities were $6,929,500, compared with $645,000 in total assets; stockholders’ deficit was $6,284,500. The filing reports no meaningful gross margin measure.
Changes and notable items
- Revenue declined approximately 64%, chiefly because the company had drawn the maximum available under the NIH AV-101 grant; the grant expired June 30, 2012. The CIRM grant had ended in September 2011, and subcontract revenue ended in May 2012.
- Operating expenses fell approximately 11%, but operating loss increased about 8% as the revenue decline outweighed expense reductions. Net loss improved year over year, largely reflecting lower interest and other expense.
- General and administrative expense included $436,400 of non-cash warrant-modification expense. Discounted warrant exercises generated $257,300 in cash and 25,000 additional shares were issued in settlement of $12,500 of services.
- The company issued 400,000 common shares for investor-relations and public-company services in June, valued at $340,000, and granted related warrants. These arrangements add dilution and non-cash expense over their service periods.
- Management disclosed missed scheduled payments on several notes, including obligations to Cato and vendor creditors. The filing says the company had not made certain monthly payments due from February through June 2012; a modified payment on one note was made in early July.
Liquidity, outlook, and risks
Management estimated cash expenditures of $4 million to $6 million over the next 12 months and stated that June 30 cash, even including subsequent financing, would not fund operations for that period. On July 2, 2012, Platinum purchased a secured 10% convertible note with $500,000 principal. Platinum also agreed to invest at least $500,000 in a qualifying financing, conditional on the company obtaining binding commitments from other investors totaling at least $3 million by September 29, 2012. The note automatically converts in a qualifying financing of at least $3 million.
The company plans to seek private financing, research collaborations, license fees, and government grants. It warned that insufficient financing could require it to reduce, defer, or discontinue research and development and could threaten its ability to continue as a going concern. Additional equity or debt financing could dilute shareholders or add obligations. No specific revenue or earnings guidance was provided.
Other key execution risks include clinical and regulatory uncertainty, the ability to secure financing and grants, and the ability to advance and commercialize its technology. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether the company secured the required investor commitments and completed a qualifying financing, and the resulting conversion terms and dilution.
- Available cash, subsequent cash use, and whether funding is sufficient for the stated $4 million to $6 million expected expenditures.
- AV-101 Phase 1b progress and results, and replacement funding following expiration of the NIH grant.
- Status of missed or modified debt payments, creditor arrangements, and the secured Platinum note.
- Potential registration-rights payments: the company had not filed the resale registration statement for the February 2012 notes by the stated deadline and recorded a $5,500 liability; the agreement provided for payments subject to a $50,000 aggregate cap.