Vistagen Therapeutics, Inc. quarterly report, Q1 FY2020

Business context and reporting period

VistaGen Therapeutics, Inc. is a clinical-stage biopharmaceutical company developing CNS treatments, with no approved products or recurring product revenue. This Form 10-Q covers the three months ended June 30, 2019—its fiscal first quarter of FY2020—and compares results with the quarter ended June 30, 2018. Amounts below are in U.S. dollars.

• Pipeline: AV-101 was in Phase 2 development for major depressive disorder (MDD); the company expected top-line results from its ELEVATE study in the second half of calendar 2019. PH94B was being prepared for pivotal Phase 3 development for social anxiety disorder (SAD), and PH10 for a planned Phase 2b MDD study.
• VistaGen also pursues stem-cell technology and drug-rescue programs, and has licensed certain cardiac stem-cell technology to BlueRock.

Financial performance and liquidity

Revenue and gross margin are not meaningful measures for this pre-commercial company. At June 30, 2019, cash and cash equivalents were $8.297 million, down from $13.100 million at March 31, 2019. Current assets were $8.780 million and current liabilities $3.308 million. Stockholders’ equity was $1.626 million; accumulated deficit was $187.343 million.

Debt and obligations included $246,400 of current notes payable, primarily insurance-premium financing, and $4.235 million of operating lease liabilities recognized following adoption of ASC 842. The company also had $4.051 million of accrued Series B preferred dividends. No new capital-raising transactions occurred in the quarter; the company noted that its February 2019 public offering had generated $11.5 million in gross proceeds.

Material changes versus the prior comparable period

• Operating expenses rose 48% year over year, with R&D up about 57%, primarily reflecting ELEVATE and other AV-101 work, manufacturing and nonclinical activities, and PH94B development. G&A increased about 30%.
• Net loss increased by about $2.0 million. Weighted-average common shares rose to 42.6 million from 23.0 million; consequently, reported loss per share improved to $(0.15) from $(0.20) despite the higher total loss.
• Cash used in operations increased by about $1.6 million, which management attributed mainly to ELEVATE, AV-101 development, and higher employee and investor-relations costs.
• On April 1, 2019, the company adopted lease accounting standard ASC 842, recording approximately $4.3 million of lease liabilities and $3.9 million of right-of-use assets at adoption. It did not restate comparative periods.

Outlook, risks and unusual items

• Going concern and financing: Management said June 30 cash was expected to fund completion and announcement of ELEVATE top-line results, but was probably insufficient to fund planned operations for the following 12 months without additional financing. The filing states this raises substantial doubt about the company’s ability to continue as a going concern. Additional equity financing, collaborations, grants, or licensing arrangements were possible, but none was assured. Failure to obtain funding could force reductions, delays, or discontinuation of development programs.
• Development outlook: The company planned to prepare for PH94B Phase 3, further AV-101 studies, and a PH10 Phase 2b study. These plans and ELEVATE timing were forward-looking and subject to clinical, regulatory, manufacturing, and funding risks; early-stage results may not predict later-stage outcomes.
• Dilution: At June 30, 21.45 million warrants were outstanding and exercisable, with a weighted-average exercise price of $2.53; 7.84 million stock options were outstanding. The company also had convertible preferred shares. These securities could dilute common holders if converted or exercised. May 2019 option grants covered 1.22 million shares; a further 170,000-share option grant was contingent on stockholder approval of a new incentive plan.
• Other notable risks: Nasdaq notified VistaGen on June 17, 2019 that it did not meet the $1.00 minimum bid-price requirement; the stated initial deadline to regain compliance was December 16, 2019. The company depends on contract research and manufacturing organizations and reported $1.405 million of quarterly expenses under its related-party CRO relationship with Cato Research Ltd.
• Controls and contingencies: Management concluded disclosure controls were effective, but reported no change in internal control over financial reporting and referenced two previously identified material weaknesses: segregation of duties and accounting-software functionality. The filing reported no legal proceedings and no off-balance-sheet arrangements.

Important facts for investors to verify

1. Whether ELEVATE produced top-line results on the stated timeline and what the results showed.
2. Cash burn, financing needs, and available funding after June 30, 2019, including the effect on planned PH94B, AV-101, and PH10 programs.
3. Nasdaq bid-price compliance and any subsequent listing notices or actions.
4. Potential dilution from warrants, options, and convertible preferred stock, alongside any later financing.
5. Progress addressing the two internal-control material weaknesses and the economics and governance of related-party CRO spending.