UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number:
VistaGen Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
| |
| |
| (State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
(Address of principal executive offices including zip code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| | ☐ | Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 10, 2022,
VistaGen Therapeutics, Inc.
Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 2022
Item 1. Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Dollars, except share amounts)
| June 30, | March 31, | |||||||
| 2022 | 2022 | |||||||
| (unaudited) | (Note 2) | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Deferred contract acquisition costs - current portion | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use asset - operating lease | ||||||||
| Deferred offering costs | ||||||||
| Deferred contract acquisition costs - non-current portion | ||||||||
| Security deposits | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Notes payable | ||||||||
| Deferred revenue - current portion | ||||||||
| Operating lease obligation - current portion | ||||||||
| Financing lease obligation - current portion | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Deferred revenue - non-current portion | ||||||||
| Operating lease obligation - non-current portion | ||||||||
| Financing lease obligation - non-current portion | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 10) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value; shares authorized at June 30, 2022 and March 31, 2022: shares outstanding at June 30, 2022 and March 31, 2022 | ||||||||
| Common stock, $ par value; shares authorized at June 30, 2022 and March 31, 2022; and shares issued at June 30, 2022 and March 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, at cost, shares of common stock held at June 30, 2022 and March 31, 2022 | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(Amounts in Dollars, except share amounts)
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenues: | ||||||||
| Sublicense revenue | $ | $ | ||||||
| Total revenues | ||||||||
| Operating expenses: | ||||||||
| Research and development | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income, net: | ||||||||
| Interest income, net | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income taxes | ( | ) | ( | ) | ||||
| Net loss and comprehensive loss | ( | ) | ( | ) | ||||
| Accrued dividend on Series B Preferred stock | ( | ) | ||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted net loss attributable to common stockholders per common share | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares used in computing basic and diluted net loss attributable to common stockholders per common share | ||||||||
See accompanying notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Dollars)
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Amortization of operating lease right of use asset | ||||||||
| Expense related to write-off of deferred offering costs | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Deferred sublicense revenue, net of deferred contract acquisition costs | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from property and investing activities: | ||||||||
| Purchases of laboratory and other equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net proceeds from issuance of common stock and warrants, including option exercises | ||||||||
| Net proceeds from exercise of warrants | ||||||||
| Expenses related to At the Market (ATM) facility treated as deferred offering costs | ( | ) | ( | ) | ||||
| Repayment of capital lease obligations | ( | ) | ( | ) | ||||
| Repayment of note payable | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of noncash activities: | ||||||||
| Insurance premiums settled by issuing note payable | $ | $ | ||||||
| Accrued dividends on Series B Preferred | $ | $ | ||||||
See accompanying notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
(Amounts in Dollars, except share amounts)
| Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Series D Preferred Stock | Common Stock | Additional Paid-in | Treasury | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Stock | Deficit | Equity | |||||||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||
| Accrued dividends on Series B Preferred | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense (including ESPP) | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from exercise of warrants | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series D Preferred stock into common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of common stock pursuant to 2019 Employee Stock Purchase Plan | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon cashless exercise of options | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of options for cash | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for quarter ended June 30, 2021 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of options for cash | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of common stock pursuant to 2019 Employee Stock Purchase Plan | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for quarter ended June 30, 2022 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Description of Business
VistaGen Therapeutics, Inc., a Nevada corporation (which may be referred to as VistaGen, the Company, we, our, or us), is a clinical-stage, biopharmaceutical company striving to transform the treatment landscape for individuals living with anxiety, depression and other central nervous system (CNS) disorders. We are focused on developing and commercializing innovative therapeutics with the potential to be faster-acting, and with fewer side effects and safety concerns, than products that are currently approved by the U.S. Food and Drug Administration (FDA). Each of our drug candidates has a differentiated potential mechanism of action (MOA), has been well-tolerated in all clinical studies to date, and may have therapeutic potential in multiple CNS indications. Our goal is to become a biopharmaceutical company that develops and commercializes innovative CNS therapies for highly prevalent neuropsychiatric and neurological indications where current treatment options are inadequate to meet the needs of millions of patients in the U.S. and worldwide.
Our clinical-stage candidates belong primarily to a new class of neuroactive steroids known as pherines, which are odorless, tasteless and active on chemosensory neurons in the nasal passages. They have the potential to treat multiple anxiety and depression disorders without systemic uptake and without direct activation of GABA-A receptors or other CNS neurons in the brain, in distinct contrast to the mechanism of action of benzodiazepines, for example, which typically are taken orally, require systemic uptake and directly modulate GABA-A receptors.
Our current product candidates include the following:
| i. | PH94B, a rapid-onset synthetic investigational pherine nasal spray that regulates the olfactory-amygdala neural circuits of fear and anxiety and attenuates the tone of the sympathetic autonomic nervous system. We are currently evaluating PH94B for the potential treatment of multiple anxiety disorders, including for adults with social anxiety disorder (SAD) in our PALISADE Phase 3 program, and for adults experiencing Adjustment Disorder with Anxiety (AjDA) in an exploratory Phase 2A clinical program. Please see below for additional information regarding our PALISADE Phase 3 program. |
| ii. | PH10, a synthetic investigational pherine nasal spray with a potential rapid-onset MOA that is fundamentally differentiated from the MOA of all currently approved treatments for depression disorders. We are preparing to launch a Phase 1 clinical program for PH10 that is designed to evaluate its potential as a fast-acting stand-alone treatment for major depressive disorder (MDD), and we believe that we may also have potential opportunities to develop PH10 for other depression-related disorders. |
| iii. | AV-101, an oral prodrug of 7-chloro-kynurenic acid (7-Cl-KYNA), which is a potent and selective antagonist of the glycine co-agonist site of the NMDAR that inhibits the function of the NMDAR, that, in combination with FDA-approved oral probenecid, has the potential to become a new oral treatment alternative for certain CNS indications involving the abnormal function of the NMDAR. We are presently conducting an exploratory Phase 1B drug-drug interaction clinical study of AV-101 in combination with probenecid. |
On July 22, 2022, we announced that PALISADE-1, our single administration assessment Phase 3 clinical study of PH94B for the acute treatment of anxiety in adults with SAD did not achieve its primary efficacy endpoint. PH94B’s safety profile in the study was favorable and consistent with all prior clinical studies to date. As of the date of this Report, we have paused enrollment in PALISADE-2, our replicate Phase 3 clinical trial in SAD, while an independent third-party biostatistician conducts an interim data analysis of the study based on subjects randomized to date. When the interim analysis is complete, we will assess the results and determine next steps with respect to the study. In addition, in August 2022 we opted to end recruitment and enrollment in the PALISADE Open-Label Safety Study (PALISADE OLS), a multiple-use, multiple-assessment long-term safety study of PH94B for the treatment of SAD. Preliminary data from the PALISADE OLS appears to support functional improvement and reduction of severity of SAD after use of PH94B on an as-needed basis over an extended exposure period when measured using the Liebowitz Social Anxiety Scale (LSAS).
We remain steadfast in our commitment to changing the trajectory of mental health care and in the potential of our drug candidates to achieve our mission. As to PH94B in SAD, we believe the combination of the overall safety profile of PH94B in studies to date, data from two Phase 2 clinical studies of PH94B in SAD, and emerging preliminary LSAS data from our PALISADE OLS study indicate a potential for SAD patients to achieve cumulative functional improvement with longer uses of PH94B, while still being used acutely, as-needed. Accordingly, in parallel with the conduct of the independent third-party interim analysis of PALISADE 2, we are preparing to meet with the FDA to discuss potential next steps for late-stage clinical development of PH94B as a potential treatment for SAD, including assessing PH94B’s therapeutic potential to achieve cumulative functional improvement over multiple uses during an extended exposure period.
Subsidiaries
VistaGen Therapeutics, Inc., a California corporation d/b/a VistaStem (VistaStem), is our wholly owned subsidiary. For the relevant periods, our Consolidated Financial Statements in this Quarterly Report on Form 10-Q (Report) also include the accounts of VistaStem’s
Note 2. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not contain all of the information and footnotes required for complete consolidated financial statements. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our interim financial information. The accompanying Condensed Consolidated Balance Sheet at March 31, 2022 has been derived from our audited consolidated financial statements at that date but does not include all disclosures required by U.S. GAAP. The operating results for the three months ended June 30, 2022 are not necessarily indicative of the operating results to be expected for our fiscal year ending March 31, 2023, or for any other future interim or other period.
The accompanying unaudited Condensed Consolidated Financial Statements and notes to the Condensed Consolidated Financial Statements contained in this Report should be read in conjunction with our audited Consolidated Financial Statements for our fiscal year ended March 31, 2022 contained in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (SEC) on June 23, 2022 (Form 10-K).
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared assuming we will continue as a going concern. As a clinical-stage biopharmaceutical company having not yet developed commercial products or achieved sustainable revenues, we have experienced recurring losses and negative cash flows from operations resulting in a deficit of approximately $
Since our inception in May 1998 through June 30, 2022, we have financed our operations and technology acquisitions primarily through the issuance and sale of our equity and debt securities for cash proceeds of approximately $
Liquidity, Capital Resources and Going Concern
During our fiscal year ended March 31, 2022 (Fiscal 2022), holders of outstanding warrants to purchase an aggregate of approximately
We had cash and cash equivalents of approximately $
When necessary and advantageous, we will seek additional financial resources to fund our planned operations through (i) sales of our equity and/or debt securities in one or more public offerings and/or private placements, (ii) the exercises of some or all of the currently outstanding warrants prior to their expiration, (iii) strategic licensing and development collaborations, and/or (iv) government grants and research awards. Subject to certain restrictions, our Registration Statement on Form S-3 (the S-3 Shelf Registration Statement) remains available for future sales of our equity securities in one or more public offerings from time to time. While we may make additional sales of our equity securities under the S-3 Shelf Registration Statement, we do not have an obligation to do so.
In addition to the potential sale of our equity and/or debt securities, we may also seek to enter research, development and/or commercialization collaborations similar to the AffaMed Agreement, which applies to development of PH94B in certain Pacific-Asian territories, to provide non-dilutive funding for our operations, while also reducing a portion of our future cash outlays and working capital requirements, and/or strategic acquisitions. Although we may seek additional collaborations that could generate revenue and/or provide non-dilutive funding for development and commercialization of our product candidates, no assurance can be provided that any such collaborations, awards or agreements will occur in the future.
Our future working capital requirements will depend on many factors, including, without limitation, potential impacts related to the on-going COVID-19 pandemic, the scope and nature of opportunities related to our success or failure and the success or failure of certain other companies in nonclinical and clinical trials, including the development and commercialization of our current product candidates, and the availability of, and our ability to enter into collaborations on terms acceptable to us. To further advance the clinical development of PH94B, PH10, and AV-101, as well as support our operating activities, we plan to continue to carefully manage our operating costs and our clinical and nonclinical programs.
Notwithstanding the foregoing, there can be no assurance that our current strategic collaboration under the AffaMed Agreement will generate revenue from future potential milestone payments or that future financings or other strategic collaborations will be available to us in sufficient amounts, in a timely manner, or on terms acceptable to us, if at all. If we are unable to obtain additional financing on a timely basis when needed, our business, financial condition, and results of operations may be harmed, the price of our common stock may decline, we may be required to reduce, defer, or discontinue certain of our research and development activities, and we may not be able to continue as a going concern. The Condensed Consolidate Financial Statements included in this Report do not include any adjustments that might result from the negative outcome of this uncertainty.
Note 3. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include those relating to revenue recognition, share-based compensation, right-of-use assets and lease liabilities and assumptions that have been used historically to value warrants and warrant modifications.
Cash and Cash Equivalents
Cash and cash equivalents are considered to be highly liquid investments with maturities of three months or less at the date of purchase.
Revenue Recognition
The AffaMed Agreement, involving clinical development and commercialization of PH94B for acute treatment of anxiety in adults with SAD, and potentially other anxiety-related disorders, in Greater China, South Korea, and Southeast Asia, has been our only source of revenue for the quarter ended June 30, 2022 and both Fiscal 2022 and Fiscal 2021. The terms of the AffaMed Agreement include a $
Under Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606), we recognize revenue when our customers obtain control of promised goods or services, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of Topic 606, we perform the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration to which we are entitled in exchange for the goods or services we transfer to a customer.
Once a contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract and determine those that are performance obligations. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. We assess whether these options provide a material right to the customer and if so, they are considered performance obligations. The exercise of a material right may be accounted for as a contract modification or as a continuation of the contract for accounting purposes.
We assess whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (that is, the good or service is capable of being distinct) and (ii) our promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (that is, the promise to transfer the good or service is distinct within the context of the contract). In assessing whether a promised good or service is distinct in the evaluation of a collaboration arrangement subject to Topic 606, we consider factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. We also consider the intended benefit of the contract in assessing whether a promised good or service is separately identifiable from other promises in the contract. If a promised good or service is not distinct, we are required to combine that good or service with other promised goods or services until we identify a bundle of goods or services that is distinct.
The transaction price is then determined and allocated to the identified performance obligations in proportion to their standalone selling prices (SSP) on a relative SSP basis. SSP is determined at contract inception and is not updated to reflect changes between contract inception and satisfaction of the performance obligations. Determining the SSP for performance obligations requires significant judgment. In developing the SSP for a performance obligation, we consider applicable market conditions and relevant Company-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. In certain circumstances, we may apply the residual method to determine the SSP of a good or service if the standalone selling price is considered highly variable or uncertain. We validate the SSP for performance obligations by evaluating whether changes in the key assumptions used to determine the SSP will have a significant effect on the allocation of arrangement consideration between multiple performance obligations.
If the consideration promised in a contract includes a variable amount, we estimate the amount of consideration to which we will be entitled in exchange for transferring the promised goods or services to a customer. We determine the amount of variable consideration by using the expected value method or the most likely amount method. We include the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, we re-evaluate the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.
If an arrangement includes development and regulatory milestone payments, we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the licensee’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.
In determining the transaction price, we adjust consideration for the effects of the time value of money if the timing of payments provides us with a significant benefit of financing. We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensee and the transfer of the promised goods or services to the licensee will be one year or less. For arrangements with licenses of intellectual property that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize royalty revenue and sales-based milestones at the later of (i) when the related sales occur, or (ii) when the performance obligation to which the royalty has been allocated has been satisfied.
We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time, based on the use of an output or input method.
The difference between revenue recognized to-date and the consideration invoiced or received to-date is recognized as either a contract asset/unbilled revenue (revenue earned exceeds cash received) or a contract liability/deferred revenue (cash received exceeds revenue earned). At June 30, 2022, we have recorded deferred revenue of $
| Balance at | Balance at | |||||||||||||||
| March 31, 2022 | Additions | Deductions | June 30, 2022 | |||||||||||||
| Deferred Revenue - current portion | $ | $ | $ | $ | ||||||||||||
| Deferred Revenue - non-current portion | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
For the single combined performance obligation under the AffaMed Agreement, the measure of progress is stand-ready straight-line over the period in which we expect to perform the services related to the license of PH94B. Accordingly, deferred revenue is being recognized on a straight-line basis over the period in which we expect to perform the services.
During the three months ended June 30, 2022 and 2021, we recognized $
Contract Acquisition Costs
During the quarter ended September 30, 2020, we made cash payments aggregating $
The following table summarizes our contract acquisition costs for the three months ended June 30, 2022.
| Balance at | Balance at | |||||||||||||||
| March 31, 2022 | Additions | Deductions | June 30, 2022 | |||||||||||||
| Deferred Contract Acquisition Costs - current portion | $ | $ | $ | $ | ||||||||||||
| Deferred Contract Acquisition Costs - non-current portion | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
Research and Development Expense
Research and development expense is composed of both internal and external costs. Internal costs include salaries and employment-related expense, including stock-based compensation expense, of scientific personnel and direct project costs. External research and development expense consists primarily of costs associated with clinical and nonclinical development of PH94B, PH10, AV-101. All such costs are charged to expense as incurred.
We also record accruals for estimated ongoing clinical trial costs. Clinical trial costs represent costs incurred by contract research organizations (CROs) and clinical trial sites. Progress payments are generally made to CROs , clinical sites, investigators and other professional service providers. We analyze the progress of clinical trials, including levels of subject enrollment, invoices received and contracted costs, when evaluating the adequacy of accrued liabilities. Significant judgments and estimates must be made and used in determining the clinical trial accrual in any reporting period. Actual results could differ from those estimates under different assumptions. Revisions are charged to research and development expense in the period in which the facts that give rise to the revision become known.
Costs incurred in obtaining product or technology licenses are charged immediately to research and development expense if the product or technology licensed has not achieved regulatory approval or reached technical feasibility and has no alternative future uses, as was the case with our acquisition of the exclusive worldwide licenses for PH94B and PH10 from Pherin during our fiscal year ended March 31, 2019.
Stock-Based Compensation
We recognize compensation cost for all stock-based awards to employees, independent directors and non-employee consultants based on the grant date fair value of the award. We record stock-based compensation expense over the period during which the employee or other grantee is required to perform services in exchange for the award, which generally represents the scheduled vesting period. We have granted restricted stock awards to employees or others nor do we have any awards with market or performance conditions. Non-cash expense attributable to compensatory grants of shares of our common stock to non-employees is determined by the quoted market price of the stock on the date of grant and is either recognized as fully-earned at the time of the grant or amortized ratably over the term of the related service agreement, depending on the terms of the specific agreement.
The table below summarizes stock-based compensation expense included in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss:
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Research and development expense | $ | $ | ||||||
| General and administrative expense | ||||||||
| Total stock-based compensation expense | $ | $ | ||||||
Expense amounts reported above include $
During the three months ended June 30, 2022, we granted from our 2019 Omnibus Equity Incentive Plan (the 2019 Plan) options to purchase an aggregate of
| Assumption: | Weighted Average | Range | |||||||
| Market price per share at grant date | $ | to | |||||||
| Exercise price per share | $ | to | |||||||
| Risk-free interest rate | % | to | |||||||
| Expected term in years | to | ||||||||
| Volatility | % | to | |||||||
| Dividend rate | % | 0.0% | |||||||
| Shares | |||||||||
| Fair Value per share | $ | ||||||||
During the quarter ended June 30, 2022, unvested options to purchase an aggregate of
Leases, Right-of-use Assets and Operating Lease Obligations
We account for our leases following the guidance of Accounting Standards Update No. 2016-02, “Leases (Topic 842)” (ASU 2016-02). ASU 2016-02 requires that we determine, at the inception of an arrangement, whether the arrangement is or contains a lease, based on the unique facts and circumstances present. Operating lease assets represent our right to use an underlying asset for the lease term (Right-of-use assets) and operating lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and operating lease liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, we include options to extend or terminate the lease when it is reasonably certain, at inception, that we will exercise that option. The interest rate implicit in lease contracts is typically not readily determinable; accordingly, we use our incremental borrowing rate, which is the rate that would be incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment, based upon the information available at the commencement date. The lease payments used to determine our operating lease assets may include lease incentives, stated rent increases and escalation clauses linked to rates of inflation, when determinable, and are recognized in determining our Right-of-use assets. Our operating lease is reflected in the Right-of-use asset – operating lease; Operating lease obligation – current portion; and Operating lease obligation – non-current portion in our Condensed Consolidated Balance Sheets.
Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Short-term leases, defined as leases that have a lease term of 12 months or less at the commencement date, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease. Variable lease payments are amounts owed by us to a lessor that are not fixed, such as reimbursement for common area maintenance costs for our facility lease; and are expensed when incurred.
Financing leases, formerly referred to as capitalized leases, are treated similarly to operating leases except that the asset subject to the lease is included in the appropriate fixed asset category, rather than recorded as a Right-of-use asset, and depreciated over its estimated useful life, or lease term, if shorter. Refer to Note 10, Commitments and Contingencies, for additional information regarding ASC 842 and its impact on our Condensed Consolidated Financial Statements.
Concentrations of Credit Risk
Financial instruments, which potentially subject us to concentrations of credit risk, consist of cash and cash equivalents. Our investment policies limit any such investments to short-term, low-risk instruments. We deposit cash and cash equivalents with quality financial institutions which are insured to the maximum of federal limitations. Balances in these accounts may exceed federally insured limits at times.
Comprehensive Loss
We have no components of other comprehensive loss other than net loss, and accordingly our comprehensive loss is equivalent to our net loss for the periods presented.
Loss per Common Share
Basic net loss attributable to common stockholders per share of common stock excludes the effect of dilution and is computed by dividing net loss increased by the accrual of dividends on outstanding shares of our Series B 10% Convertible Preferred Stock (Series B Preferred) prior to its conversion during Fiscal 2022, by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss attributable to common stockholders per share of common stock reflects the potential dilution that could occur if securities or other contracts to issue shares of common stock were exercised or converted into shares of common stock. In calculating diluted net loss attributable to common stockholders per share, we have generally not increased the denominator to include the number of potentially dilutive common shares assumed to be outstanding during the period using the treasury stock method because the result is antidilutive.
As a result of our net loss for both periods presented, potentially dilutive securities were excluded from the computation of diluted net loss per share, as their effect would be antidilutive. Potentially dilutive securities excluded in determining diluted net loss attributable to common stockholders per common share are as follows:
| At June 30, | At March 31, | At June 30, | ||||||||||
| 2022 | 2022 | 2021 | ||||||||||
| Series A Preferred stock issued and outstanding (1) | ||||||||||||
| Series B Preferred stock issued and outstanding (2) | ||||||||||||
| Series C Preferred stock issued and outstanding (3) | ||||||||||||
| Outstanding options under the Company's Amended and Restated 2016 (formerly 2008) Stock Incentive Plan and 2019 Omnibus Equity Incentive Plan | ||||||||||||
| Outstanding warrants to purchase common stock | ||||||||||||
| Total | ||||||||||||
(1) Assumes exchange under the terms of the October 11, 2012 Note Exchange and Purchase Agreement, as amended.
(2) Assumes exchange under the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series B 10% Convertible Preferred Stock, effective May 5, 2015; excludes shares of unregistered common stock issuable in payment of dividends on Series B Preferred upon conversion. We issued
(3) Assumes exchange under the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series C Convertible Preferred Stock, effective January 25, 2016.
Fair Value Measurements
We do not use derivative instruments for hedging of market risks or for trading or speculative purposes. Our only financial assets that are measured on a recurring basis at fair value were $
Warrants Issued in Connection with Equity Financing
We evaluate the appropriate balance sheet classification of warrants we issue as either equity or as a derivative liability. In accordance with ASC 815-40, Derivatives and Hedging-Contracts in the Entity’s Own Equity (ASC 815-40), we classify a warrant as equity if it is “indexed to the Company’s equity” and meets several specific conditions for equity classification. A warrant is not considered “indexed to the Company’s equity,” in general, when it contains certain types of exercise contingencies or potential adjustments to its exercise price. If a warrant is not indexed to the Company’s equity or it has net cash settlement that results in the warrants to be accounted for under ASC 480, Distinguishing Liabilities from Equity or ASC 815-40, it is classified as a derivative liability which is carried on the consolidated balance sheet at fair value with any changes in its fair value recognized immediately in the Statement of Operations and Comprehensive Loss. At June 30, 2022 and March 31, 2022, we had both investor warrants and stock-based compensation warrants outstanding that were classified as equity.
Recent Accounting Pronouncements
We believe the following recent accounting pronouncement is of significance or potential significance to the Company.
In August 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), to reduce complexity in applying U.S. GAAP to certain financial instruments with characteristics of liabilities and equity.
The guidance in ASU 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. The guidance in ASC 470-20 applies to convertible instruments for which the embedded conversion features are not required to be bifurcated from the host contract and accounted for as derivatives.
In addition, the amendments revise the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification. These amendments are expected to result in more freestanding financial instruments qualifying for equity classification (and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract.
The amendments in ASU 2020-06 further revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares.
The amendments in ASU 2020-06 are effective for our fiscal year beginning April 1, 2024. We are evaluating the impact of this new guidance, but do not believe that our adoption of ASU 2020-06 will have a material impact on our Consolidated Financial Statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.
Note 4. Prepaid Expense and Other Current Assets
Prepaid expense and other current assets are composed of the following:
| June 30, | March 31, | |||||||
| 2022 | 2022 | |||||||
| Clinical and nonclinical materials and contract services | $ | $ | ||||||
| Insurance | ||||||||
| Receivable from CRO for cancelled project | ||||||||
| Receivable from collaboration partner | ||||||||
| All other | ||||||||
| $ | $ | |||||||
The amount reported as receivable from CRO for cancelled project at June 30, 2022 and March 31, 2022 represents the amount of prepayments on a cancelled project net of expense incurred by the CRO prior to project cancellation and was refunded to us in July 2022. The amount reported as receivable from collaboration partner at June 30, 2022 represents payments we made to two CROs for project and clinical trial services on behalf of our collaboration partner. Our collaboration partner has not reimbursed us for these amounts as of the date of this Report.
Note 5. Property and Equipment
Property and equipment is composed of the following:
| June 30, | March 31, | |||||||
| 2022 | 2022 | |||||||
| Laboratory equipment | $ | $ | ||||||
| Tenant improvements | ||||||||
| Office furniture and equipment | ||||||||
| Manufacturing equipment | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
We recorded depreciation and amortization expense of $
| June 30, | March 31, | |||||||
| 2022 | 2022 | |||||||
| Office equipment subject to financing lease | $ | $ | ||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Net book value of office equipment subject to financing lease | $ | $ | ||||||
The fully-depreciated office equipment reported at March 31, 2022 was subject to a lease that expired in January 2022. That equipment was replaced subject to a new lease in April 2022. The new lease requires a monthly payment of approximately $
Note 6. Accrued Expense
Accrued expense is composed of the following:
| June 30, | March 31, | |||||||
| 2022 | 2022 | |||||||
| Accrued expenses for clinical and nonclinical materials, development and contract services | $ | $ | ||||||
| Accrued compensation | ||||||||
| Accrued professional services | ||||||||
| All other | ||||||||
| $ | $ | |||||||
Note 7. Note Payable
The following table summarizes our outstanding notes payable at June 30, 2022 and March 31, 2022.
| June 30, 2022 | March 31, 2022 | |||||||||||||||||||||||
| Principal | Accrued | Principal | Accrued | |||||||||||||||||||||
| Balance | Interest | Total | Balance | Interest | Total | |||||||||||||||||||
| Note payable to insurance premium financing company (current) | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
In May 2022, we executed a
Note 8. Capital Stock
ATM Agreement
In May 2021, we entered into an Open Market Sale AgreementSM (the Sales Agreement) with Jefferies LLC, as sales agent (Jefferies), with respect to an at-the-market offering program (the ATM) under which we may, in our sole discretion, offer and sell, from time to time, shares of our common stock having an aggregate offering price of up to $
We record transactions under the Sales Agreement on a settlement date basis. All legal fees and accounting expenses incurred in connection with the Sales Agreement are recorded as Deferred Offering Costs and are amortized to Additional Paid-in Capital as costs of the offering as sales of Shares are made under the Sales Agreement. Between execution of the Sales Agreement in May 2021 and March 31, 2022, we incurred legal fees and accounting expenses aggregating approximately $
Stock Option Exercises and ESPP Purchases
During the quarter ended June 30, 2022, the holder of an outstanding stock option exercised such option to purchase
Warrants Outstanding
The following table summarizes warrants outstanding and exercisable as of June 30, 2022 and March 31, 2022. All outstanding warrants are currently exercisable and the weighted average exercise price of such warrants at June 30, 2022 is $
| Warrants | ||||||
| Exercisable and | ||||||
| Exercise | Outstanding at | |||||
| Price | Expiration | June 30, 2022 and | ||||
| per Share | Date | March 31, 2022 | ||||
| $0.50 | 12/9/2022 | |||||
| $0.73 | 7/25/2025 | |||||
| $0.805 | 12/31/2022 | |||||
| $1.50 | 12/13/2022 | |||||
| $1.70 | 10/5/2022 | |||||
| $1.82 | 3/7/2023 | |||||
| $7.00 | 3/3/2023 | |||||
In May 2020, we filed a Registration Statement on Form S-3 covering the resale of the shares underlying substantially all of the currently outstanding warrants (the Warrant Registration Statement), except those having an exercise price of $
Note 9. Related Party Transactions
During the fourth quarter of Fiscal 2022, we entered into a consulting agreement with an independent member of our Board to provide corporate development and public relations advisory services. We recorded expense of $
Note 10. Commitments and Contingencies
We lease our headquarters office and laboratory space in South San Francisco, California under the terms of a lease that was set to expire on July 31, 2022, but which provided an option to renew for an additional years at then-current market rates. For the purpose of determining the right-of-use asset and associated lease liability, we determined that the renewal of this lease for the period from August 2022 through July 2027 was reasonably probable at the time we adopted ASC 842. On October 14, 2021, we entered into an amendment to the lease (the Lease Amendment), pursuant to which the term of the lease was extended from August 1, 2022 to July 31, 2027 and the base rent under the lease for the five-year extension period was specified. Under the terms of the Lease Amendment, we have the option to renew the lease for an additional five-year term commencing on August 1, 2027. Consistent with our adoption of ASC 842, beginning April 1, 2019, we recorded this lease in our Consolidated Balance Sheet as an operating lease. The lease of our South San Francisco facilities does not include any restrictions or covenants requiring special treatment under ASC 842.
The following table summarizes the presentation of the operating lease in our Condensed Consolidated Balance Sheet:
| As of June 30, 2022 | As of March 31, 2022 | |||||||
| Assets | ||||||||
| Right of use asset – operating lease | $ | $ | ||||||
| Liabilities | ||||||||
| Current operating lease obligation | $ | $ | ||||||
| Non-current operating lease obligation | ||||||||
| Total operating lease liability | $ | $ | ||||||
The following table summarizes the effect of operating lease costs in the Company’s Condensed Consolidated Statements of Operations:
| For the Three Months Ended | For the Three Months Ended | |||||||
| June 30, 2022 | June 30, 2021 | |||||||
| Operating lease cost | $ | $ | ||||||
The minimum (base rental) lease payments related to our South San Francisco operating lease are expected to be as follows:
| Fiscal Years Ending March 31, | ||||
| 2023 (remaining nine months) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total lease expense | ||||
| Less imputed interest | ( | ) | ||
| Present value of operating lease liabilities | $ |
The remaining lease term, which does not include the optional five-year extension at the expiration of the lease period ending July 31, 2027, and the discount rate assumption for our South San Francisco operating lease is as follows:
| As of June 30, 2022 | ||||
| Assumed remaining lease term in years | ||||
| Assumed discount rate | % | |||
The interest rate implicit in lease contracts is typically not readily determinable and, as such, we used our estimated incremental borrowing rate based on information available at the adoption of ASC 842, which represents an internally developed rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment.
Supplemental disclosure of cash flow information related to our operating lease included in cash flows used by operating activities in the condensed consolidated statements of cash flows is as follows:
| For the Three Months Ended | For the Three Months Ended | |||||||
| June 30, 2022 | June 30, 2021 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | $ | ||||||
During the three months ended June 30, 2022, we did not record any new right of use assets arising from new operating lease liabilities.
We also lease a small office in the San Francisco Bay Area under a month-to-month arrangement at insignificant cost and have made an accounting policy election not to apply the ASC 842 operating lease recognition requirements to such short-term lease. We recognize the lease payments for this lease in general and administrative expense over the lease term. We recorded rent expense of $
Note 11. Sublicensing and Collaborative Agreements
On June 24, 2020, we entered into a license and collaboration agreement with EverInsight Therapeutics Inc. (EverInsight ). Subsequent to entering into this agreement, in October 2020, EverInsight merged with AffaMed Therapeutics, Inc. (AffaMed), which as a combined entity is focusing on developing and commercializing therapeutics to address ophthalmologic and CNS disorders in Greater China (which includes Mainland China, Hong Kong, Macau and Taiwan) and beyond. Accordingly, we are now referring to EverInsight as AffaMed and our June 2020 license and collaboration agreement as the AffaMed Agreement. Under the AffaMed Agreement, we granted AffaMed an exclusive license to develop and commercialize PH94B for SAD and other anxiety-related disorders in Greater China, South Korea and Southeast Asia (which includes Indonesia, Malaysia, Philippines, Thailand and Vietnam) (collectively, the Territory). We retain exclusive development and commercialization rights for PH94B in the U.S. and throughout the rest of the world.
Under the terms of the AffaMed Agreement, AffaMed is responsible for all costs related to developing, obtaining regulatory approval of, and commercializing PH94B for treatment of SAD, and potentially other anxiety-related indications, in the Territory. A joint development committee has been established between us and AffaMed to coordinate and review the development and commercialization plans with respect to PH94B in the Territory.
We are responsible for pursuing clinical development and regulatory submissions of PH94B for acute treatment of anxiety in adults with SAD, and potentially other anxiety-related indications, in the United States on a “best efforts” basis, with no guarantee of success. AffaMed has the option to participate in a Phase 3 clinical trial of PH94B involving all or a portion of the Territory and will be responsible for a portion of the costs of such a trial, if conducted. We will transfer all development data (nonclinical and clinical data) and our regulatory documentation related to PH94B throughout the term as it is developed or generated or otherwise comes into our control. We will grant to AffaMed a Right of Reference to all of our regulatory documentation and our development data.
Under the terms of the AffaMed Agreement, AffaMed agreed to pay us a non-refundable upfront license payment of $
We have determined that we have combined performance obligation for the license to develop and commercialize PH94B in the Territory and related development and regulatory services. In addition, AffaMed has an option that will create manufacturing obligations for us during development upon exercise by AffaMed. This option for manufacturing services was evaluated and determined not to include a material right.
Development and commercialization milestones were not considered probable at inception and therefore were excluded from the initial transaction price. The royalties were excluded from the initial transaction price because they relate to a license of intellectual property and are subject to the royalty constraint.
We recognize revenue as the combined performance obligation is satisfied over time using an output method. The measure of progress is stand-ready straight-line over the period in which we expect to perform the services related to the license of PH94B.
During the three months ended June 30, 2022 and 2021, we recognized $
Unless earlier terminated due to certain material breaches of the contract, or otherwise, the AffaMed Agreement will expire on a jurisdiction-by-jurisdiction basis until the latest to occur of expiration of the last valid claim under a licensed patent of PH94B in such jurisdiction, the expiration of regulatory exclusivity in such jurisdiction or ten years after the first commercial sale of PH94B in such jurisdiction.
Note 12. Subsequent Events
We have evaluated subsequent events through the date of this Report and have identified the following matters requiring disclosure:
Grant of Options from 2019 Plan
From July 1, 2022 through the date of this Report, we have granted options to purchase
| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (Report) includes forward-looking statements. All statements contained in this Report other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions. Our business is subject to significant risks including, but not limited to, our ability to obtain substantial additional financing, the results of our research and development efforts, the results of nonclinical and clinical testing, the effect of regulation by the U.S. Food and Drug Administration (FDA) and other domestic and foreign regulatory agencies, the impact of competitive products, product development, commercialization and technological difficulties, the effect of our accounting policies, and other risks as detailed in the section entitled “Risk Factors” in this Report. Further, even if our product candidates appear promising at various stages of development, our share price may decrease such that we are unable to raise additional capital without significant dilution or other terms that may be unacceptable to our management, Board of Directors (Board) and stockholders.
Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management or Board to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of these forward-looking statements after the date of this Report or to conform these statements to actual results or revised expectations. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
Business Overview
We are a late clinical-stage, biopharmaceutical company striving to transform the treatment landscape for individuals living with anxiety, depression and other central nervous system (CNS) disorders. We are focused on developing and commercializing innovative therapeutics with the potential to be faster-acting, and with fewer side effects and safety concerns, than products that are currently approved by the U.S. Food and Drug Administration (FDA). Each of our drug candidates has a differentiated potential mechanism of action (MOA), has been well-tolerated in all clinical studies to date, and may have therapeutic potential in multiple CNS indications. Our goal is to become a biopharmaceutical company that develops and commercializes innovative CNS therapies for highly prevalent neuropsychiatric and neurological indications where current treatment options are inadequate to meet the needs of millions of patients in the U.S. and worldwide.
Our clinical-stage candidates belong primarily to a new class of neuroactive steroids known as pherines, which are odorless, tasteless and active on chemosensory neurons in the nasal passages . They have the potential to treat multiple anxiety and depression disorders without systemic uptake and without direct activation of GABA-A receptors or other CNS neurons in the brain, in distinct contrast to the mechanism of action of benzodiazepines, for example, which typically are taken orally, require systemic uptake and directly modulate GABA-A receptors.
Our most advanced product candidate, PH94B, is currently being evaluated as a potential treatment of multiple anxiety disorders, including for adults with social anxiety disorder (SAD). On July 22, 2022, we announced that PALISADE-1, our single administration assessment Phase 3 clinical study of PH94B for the acute treatment of anxiety in adults with SAD did not achieve its primary efficacy endpoint. PH94B’s safety profile in the study was favorable and consistent with all prior clinical studies to date. As discussed below, as of the date of this Report, we have paused enrollment in PALISADE-2, our replicate Phase 3 clinical trial in SAD, while an independent third-party conducts an interim data analysis of the study based on subjects randomized to date. When the interim analysis is complete, we will assess the results and determine next steps with respect to the study.
In addition, in August 2022 we opted to end recruitment and enrollment in the PALISADE Open-Label Safety Study (PALISADE OLS), a multiple-use, multiple-assessment long-term safety study of PH94B for the treatment of SAD. Preliminary data from the PALISADE OLS appears to support functional improvement and reduction of severity of SAD after use of PH94B on an as-needed basis over an extended exposure period when measured using the Liebowitz Social Anxiety Scale (LSAS). The LSAS is a well-established 24-item questionnaire, developed in 1987 by Dr. Michael Liebowitz, while a Professor of Psychiatry at Columbia University. The LSAS is commonly used to assess the range of social interaction and performance situations feared by a patient in order to assist in the diagnosis of SAD and was the primary efficacy endpoint supporting the approval of the three antidepressants currently approved by the FDA for treatment of SAD.
We remain steadfast in our commitment to changing the trajectory of mental health care and in the potential of our drug candidates to achieve our mission. As to PH94B in SAD, we believe the combination of the overall safety profile of PH94B in studies to date, data from two Phase 2 clinical studies of PH94B in SAD, and emerging preliminary LSAS data from our PALISADE OLS study indicate a potential for SAD patients to achieve cumulative functional improvement with longer uses of PH94B, while still being used acutely, as-needed. Accordingly, in parallel with the conduct of the independent third-party interim analysis of PALISADE 2, we are preparing to meet with the U.S. Food and Drug Administration (FDA) to discuss potential next steps for late-stage clinical development of PH94B as a potential treatment for SAD, including assessing PH94B’s therapeutic potential to achieve cumulative functional improvement over multiple uses during an extended exposure period.
A further description of PH94B and our other product candidates, as well as our clinical and non-clinical development programs is below.
Our Product Candidates
PH94B Nasal Spray
PH94B is a first-in-class synthetic investigational pherine nasal spray designed with a novel rapid-onset MOA that regulates the olfactory-amygdala neural circuits of fear and anxiety and attenuates the tone of the sympathetic autonomic nervous system. PH94B is administered intranasally in low microgram doses, and is intended to be used as needed by a person with SAD before an anxiety provoking event, similar to the use of a rescue inhaler before a predictable asthma attack. The proposed MOA of PH94B is fundamentally differentiated from all currently approved anti-anxiety medications, including the antidepressants approved by the FDA for the treatment of SAD, as well as all benzodiazepines and beta blockers prescribed for treatment of SAD on an off-label basis. The MOA for PH94B does not involve systemic uptake, direct activation of GABA-A receptors in the brain, or binding to neuronal receptors in the CNS. Rather, when administered intranasally, PH94B binds to chemosensory neurons in the nose that activate neural circuits involving olfactory bulb neurons and the limbic amygdala, a region in the brain that is involved in the pathophysiology of SAD and potentially other anxiety and mood disorders.
We are currently evaluating PH94B for the potential treatment of multiple anxiety disorders, including for adults with SAD and for adults experiencing Adjustment Disorder with Anxiety (AjDA). Both pre-clinical and Phase 2 clinical data to date suggest that PH94B has the potential to achieve rapid-onset anti-anxiety effects without systemic uptake or transport into the brain, reducing the risk of side effects and other safety concerns such as abuse potential associated with certain other pharmaceuticals that act directly on the CNS and are sometimes prescribed for anxiety disorders.
SAD Phase 1 Studies
Phase 1 Autonomic System Biomarker Study
Pherines such as PH94B appear to modulate the activity of the limbic-hypothalamic autonomic nervous system. To evaluate the pharmacodynamic activity of PH94B, a single-blind, randomized study (n =16) was performed to compare the effect of PH94B and steroidal hormones (estradiol, progesterone, cortisol, and testosterone) on the electrogram recorded from the mucosal lining of the vomeronasal organ (VNO) nasal chemosensory epithelium (including the VNO pit area) and autonomic nervous system function in healthy male (n = 8) and female (n = 8) subjects. Intranasal administration of PH94B (400 ng 0.4 µg) significantly increased the amplitude of the electrogram, decreased cardiac and respiratory frequency rate (within physiologic range), and decreased the frequency of electrodermal activity (skin conductance) events. Local intranasal application of steroidal hormones, estradiol, progesterone, cortisol, and testosterone (400 ng 0.4 µg each), had no significant effect on the electrical response of the mucosal lining of the nasal chemosensory epithelium (including the VNO pit area) or the measures of autonomic nervous system function. Volunteers felt calmer and less tense per self-report, suggesting an anxiolytic effect. We believe these results demonstrate the biological activity of PH94B and provide support for evaluating potential behavioral changes after intranasal PH94B administration.
Phase 1 Dose Response Study
In a Phase 1 dose response pharmacology study, the increased electrical activity of the nasal chemosensory epithelium electrogram of nasal receptors (EGNR) was shown to be dose dependent and similar in both male and female healthy volunteers after receiving ascending doses of PH94B. Maximal EGNR amplitude was achieved at the 3.2 μg dose in both men (n=10) and women (n=10), and no significant increase was seen at higher doses (6.4 μg and 12.8 μg).
SAD Phase 2 Studies
Positive Results in Public Speaking and Social Interaction-Induced Stressors in a Clinical Setting
Phase 2 development of PH94B began with a two-part public speaking and social interaction challenge study. In this randomized, double-blind, placebo-controlled Phase 2 clinical trial (n=91) conducted at three clinical sites, 91 adult female subjects diagnosed with SAD underwent a placebo baseline period followed a week later by a randomized treatment period and intranasal administration of 1.6 μg of PH94B. PH94B (1.6 μg) was administered intranasally 15 minutes prior to both a performance challenge (public speaking) and a social interaction challenge simulation, which took place at the clinical sites. The two challenges were separated by a 30-minute rest period. The primary outcome measure was the Subjective Units of Distress Scale (SUDS). Peer-reviewed results published in the American Journal of Psychiatry (Monti, et al., Am. J. Psychiatry (2014) 171:675-682) showed statistically significant results for reducing anxiety during a public speaking performance and during social interactions in a clinical setting. During the public speaking challenge, subjects randomized to treatment with PH94B (n = 45) showed a 26.7-point improvement in mean SUDS scores following the treatment visit with PH94B as compared to the SUDS scores during the baseline visit (placebo treatment). In comparison, subjects randomized to treatment with placebo (n = 46) showed an improvement of only 14.0 points in mean SUDS scores compared to baseline. The PH94B treatment group’s improvement in the public speaking challenge significantly exceeded that of the placebo group’s improvement (t = 3.16, p = 0.002).
Positive Results in SAD Outpatients
PH94B is designed with the potential to lower anxiety acutely, on an as-needed basis, and to achieve cumulative functional improvement with continued use. Accordingly, the protocol for a subsequent randomized, double-blind, placebo-controlled multiple administration assessment Phase 2 crossover study (n=22) involving both adult males (n =11) and females (n=11), required subjects to self-administer PH94B or placebo nasal spray in an outpatient setting (i.e., not in a clinical environment) acutely, on an as-needed basis, just prior to an anxiety-provoking situation, up to four times a day, for two weeks. The primary efficacy measure in the study was the SUDS and the secondary efficacy measure was the LSAS. Dr. Michael Liebowitz, the innovator of the LSAS, was the Principal Investigator of this study.
The change from baseline SUDS scores was significantly greater for all subjects while taking PH94B compared with the placebo group. The average change from baseline SUDS score was 15.6 points for all subjects while on PH94B and was 8.3 points while on placebo (paired t-test = 3.09; p = 0.006; effect size 0.658). During the first two weeks of treatment, subjects who received PH94B first dropped an average of 23 points in LSAS score, while those who received placebo first dropped only eight points on average, showing a trend difference (p = 0.07) with a large effect size of 0.812.
Looking at only the first two weeks of treatment, subjects who received PH94B first had a significantly greater decrease in their avoidance score on the LSAS than those who received placebo first (p = 0.02, Cohen’s d = 1.078). A large effect size (0.78) and trend to significance (p = 0.083) in favor of PH94B also was observed when comparing overall the Clinical Global Impression (CGI) score means for PH94B and placebo during the first two weeks of treatment. Patient Global Impression of Change (PGI-C) ratings also showed improvement for PH94B after two weeks of treatment (p = 0.024).
No drug-related serious adverse events (SAEs) were reported during the study. All adverse events (AEs) were mild or moderate and the frequencies of their occurrence did not differ meaningfully between active and placebo treatments.
We believe this multiple-administration assessment Phase 2 study conducted outside a clinical environment indicates the potential for cumulative functional improvement with longer use of PH94B, while still being used acutely, as-needed, as subjects are increasingly able to engage in previously difficult social and performance situations in their daily lives with less anxiety.
SAD PALISADE Phase 3 Program (PALISADE-1, PALISADE-2 and PALISADE OLS)
On July 22, 2022, we announced that PALISADE-1, our single administration assessment Phase 3 clinical study of PH94B for the acute treatment of anxiety in adults with SAD did not achieve its primary endpoint, as measured by change from baseline using the SUDS as compared to placebo. The study involved self-administration of a single dose of PH94B by subjects randomized to the treatment arm of the study prior to a public speaking challenge, which was conducted in a clinical setting. As we continue to evaluate the topline results from PALISADE-1, we have paused recruitment and enrollment in PALISADE-2, a replicate study of PALISADE-1, while an independent third-party biostatistician conducts an interim analysis of available data from subjects randomized in PALISADE-2 to date. Although PALISADE-1 did not meet its primary efficacy endpoint, the safety and tolerability of PH94B in PALISADE-1 were favorable and consistent with previously reported results from previous clinical trials.
We have also opted to end recruitment and enrollment in the PALISADE OLS study of PH94B to assess potential cumulative functional improvement as measured by the LSAS from preliminary data (not published) involving nearly 200 subjects enrolled in the study who have used PH94B acutely, as needed, multiple times over multiple different periods of time. As noted above, we believe preliminary data from the PALISADE OLS study of PH94B are encouraging and suggest that continued as-needed use of PH94B has potential to achieve cumulative functional improvement in the severity of SAD when measured with the LSAS. In addition, to date in the PALISADE OLS, we believe PH94B's safety profile has been favorable and consistent with reported results from all previous clinical trials.
As noted above, taking into consideration the results of PALISADE-1, and as we await the interim analysis of PALISADE-2, we believe the combination of the overall safety profile of PH94B in studies to date, data from two Phase 2 clinical studies of PH94B in SAD, and emerging preliminary LSAS data from our PALISADE OLS study indicate a potential for SAD patients to achieve cumulative functional improvement with longer uses of PH94B, while still being used acutely, as-needed. Accordingly, while the the independent third-party biostatistician conducts the interim analysis of PALISADE 2, we are preparing to meet with the FDA to discuss potential next steps for late-stage clinical development of PH94B as a potential treatment for SAD, including assessing PH94B’s therapeutic potential to achieve cumulative functional improvement over multiple uses during an extended exposure period. After the results of the interim analysis are available to us, we plan to meet with the FDA and pursue consensus on clearly defined path forward for further Phase 3 development of PH94B in SAD.
Exploratory Phase 2A Development for AjDA and Future Development Opportunities
Our exploratory Phase 2A clinical study of PH94B to assess the therapeutic potential of PH94B in adults experiencing Adjustment Disorder with Anxiety (AjDA) is ongoing. Adjustment Disorder (AjD) refers to a maladaptive emotional or behavioral response to an identifiable stressor. AjD occurs within three months of exposure to the stressor as evidenced by marked distress that is out of proportion to the socially or culturally expected reactions to the stressor, or that represents significant impairment in social, occupational or other important areas of daily functioning. Current pharmacological treatments for AjDA vary widely and include antidepressants (SSRIs and SNRIs), benzodiazepines, buspirone and natural products such as cannabidiol. Our randomized, double-blind, placebo-controlled exploratory Phase 2A study in AjDA involves daily use of PH94B in an outpatient setting for 28 days.
We plan to assess additional potential development opportunities involving PH94B, for both potential acute and continued use in the treatment of other anxiety-related disorders, including procedural anxiety, post-traumatic stress disorder, postpartum anxiety and panic disorder.
PH10 Nasal Spray
PH10 is an investigational pherine nasal spray with a potential rapid-onset MOA that is fundamentally differentiated from the MOA of all currently approved treatments for depression disorders. PH10, which is administered at microgram-level doses, engages and activates chemosensory cells in the nasal passages, connected to neural circuits in the brain that produce antidepressant effects. Specifically, PH10’s proposed MOA involves binding to peripheral chemosensory neurons in the nasal passages to regulate the olfactory-amygdala neural circuits believed to increase activity of the limbic-hypothalamic sympathetic nervous system and increase the release of catecholamines. Importantly, unlike all currently approved oral antidepressants (ADs) and rapid-onset ketamine-based therapy (KBT), including both intravenous ketamine and intranasal ketamine (esketamine), we believe PH10 does not require systemic uptake to produce rapid-onset of antidepressant effects.
In a small (n=30) exploratory randomized, double-blind, placebo-controlled parallel design Phase 2A in major depressive disorder (MDD) conducted in Mexico, at a 6.4 μg dose administered intranasally twice daily for 8 weeks, PH10 significantly reduced depressive symptoms as early as one week based on the 17-item Hamilton Depression Scale (HAM-D-17) scores compared to placebo (p = 0.022). PH10 was well-tolerated and did not cause psychological side effects (such as dissociation and hallucinations) or other safety concerns that may be associated with KBT.. Our planned U.S. Phase 1/2B clinical program for PH10 is designed to evaluate its potential as a fast-acting stand-alone treatment for MDD. We are currently preparing our U.S. Investigational New Drug (IND) application to enable clinical development of PH10 in the U.S. . We are planning to initiate a small Phase 1 study of PH10 in the U.S. before the end of calendar 2022 to facilitate potential Phase 2B development of PH10 in the U.S. for treatment of MDD beginning in calendar 2023. We may also have potential opportunities to develop PH10 for other depression-related disorders.
AV-101
AV-101 is an oral prodrug of 7-chloro-kynurenic acid (7-Cl-KYNA), which is a potent and selective antagonist of the glycine co-agonist site of the NMDAR that inhibits the function of the NMDAR. Unlike ketamine and many other NMDAR antagonists, 7-Cl-KYNA is not an ion channel blocker. At doses administered in the Company’s studies completed to date, AV-101 has been observed to be well tolerated and has not exhibited dissociative or hallucinogenic psychological side effects or safety concerns, unlike other modulators of the NMDAR. Based on observations and findings from preclinical studies, we believe that AV-101, in combination with FDA-approved oral probenecid, has the potential to become a new oral treatment alternative for certain CNS indications involving the NMDAR. We are presently conducting an exploratory Phase 1B drug-drug interaction clinical study of AV-101 in combination with probenecid.
The FDA has granted Fast Track designation for development of AV-101 as a potential adjunctive treatment for MDD and as a non-opioid treatment for neuropathic pain.
Subsidiaries
VistaGen Therapeutics, Inc., a California corporation d/b/a VistaStem (VistaStem), is our wholly owned subsidiary. For the relevant periods, our Consolidated Financial Statements in this Quarterly Report on Form 10-Q (Report) also include the accounts of VistaStem’s two wholly owned inactive subsidiaries, Artemis Neuroscience, Inc., a Maryland corporation which was dissolved in April 2022, and VistaStem Canada, Inc., a corporation organized under the laws of Ontario, Canada which was dissolved in June 2022.
Financial Operations Overview and Results of Operations
Our critical accounting policies and estimates and recent accounting pronouncements are disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, as filed with the SEC on June 23, 2022, and in Note 3 to the accompanying unaudited Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Report.
Summary
Net Loss
We have not yet achieved recurring revenue-generating status from any of our product candidates or technologies in amounts sufficient to sustain our operations and enable our strategic business plans. Since acquiring our exclusive worldwide licenses to PH94B and PH10 in 2018, we have devoted substantial resources to advance initiatives related to research, development, and contract manufacturing of our intranasal investigational product candidates, PH94B and PH10, including initiatives related to manufacturing processes, analytical methods and production programs for drug substance and finished drug product, as well as for preclinical studies and clinical studies focused on potential commercialization of these product candidates for neuropsychiatry indications. During calendar 2021 and to date in calendar 2022, we allocated significant resources to our PALISADE Phase 3 Program evaluating PH94B for the acute treatment of anxiety in adults with SAD, and we conducted, and are continuing to conduct, various preclinical studies and manufacturing activities intended to enable submission of our U.S. IND for PH10 in MDD and initiation of a small Phase 1 clinical study of PH10 to facilitate potential Phase 2B clinical development of PH10 in the U.S. as a stand-alone treatment for MDD. With respect to AV-101, our current focus is evaluating AV-101 in combination with probenecid which may provide opportunities to explore the therapeutic potential of the combination for certain CNS indications involving the NMDAR. We have continuing initiatives for creating, protecting and patenting intellectual property (IP) related to our product candidates and technologies, with the corollary initiatives of recruiting and retaining personnel and raising working capital. At June 30, 2022, we had an accumulated deficit of approximately $287.4 million. Our net loss for the quarters ended June 30, 2022 and 2021 was approximately $19.8 million and $7.7 million, respectively, and for the fiscal years ended March 31, 2022 (Fiscal 2022) and 2021 (Fiscal 2021) was approximately $47.8 million and $17.9 million, respectively. We expect losses to continue for the foreseeable future, primarily as we engage in further research, development and regulatory activities related to PH94B, PH10 and AV-101.
Summary of the Three Months Ended June 30, 2022
Throughout Fiscal 2022 and through the date of this Report, we have continued to advance our nonclinical and clinical development, manufacturing, and regulatory activities necessary for (i) Phase 3 clinical development of PH94B as a potential acute treatment of anxiety in adults with SAD, (ii) advancing our Phase 2A clinical study of PH94B in adults experiencing AjDA, (iii) initiating a small Phase 1 study of PH10 in the U.S. to facilitate potential Phase 2B development as a stand-alone treatment of MDD and (iv) exploratory Phase 1B development of AV-101 in combination with probenecid to assess potential opportunities to develop the combination for treatment of certain CNS indications.
We initiated our PALISADE Phase 3 Program for PH94B in SAD with the commencement of PALISADE-1 in May 2021 and PALISADE-2 in August 2021. During Fiscal 2022, we also initiated the PALISADE OLS and advanced our Phase 2A clinical study of PH94B in adults experiencing AjDA. We achieved last patient out of PALISADE-1 in June 2022 and commenced analysis of the data generated throughout the study. As noted above, in July 2022 we determined that PALISADE-1 did not achieve its primary efficacy endpoint. Accordingly, we are actively investigating, on multiple fronts, potential contributors to that outcome. As noted above, we have paused recruitment and enrollment of PALISADE-2 while we engage an independent third-party statistician to conduct an interim assessment of data currently available from randomized subjects in that study. The results of that interim assessment will help guide near-term activities related to both PALISADE-2 and future clinical trials of PH94B in SAD and/or other anxiety indications. In addition, we ended enrollment in our PALISADE OLS and are assessing preliminary data from the study that we believe supports continued late-stage clinical development of PH94B as a potential treatment for SAD in a manner consistent with both data observed in Phase 2 development of PH94B in SAD, i.e., with multiple assessments of PH94B’s potential efficacy, as compared to placebo, when used acutely, as-needed, over an extended period of time in an outpatient setting, rather than a single administration assessment in an anxiety-provoking public speaking challenge conducted in a clinical setting.
Beginning in the fourth quarter of Fiscal 2021, throughout Fiscal 2022, and continuing through the date of this Report, we have expanded our employee infrastructure with experienced personnel additions across multiple functional areas, including clinical operations, clinical research, data management, chemistry, manufacturing and controls (CMC) and quality assurance, biostatistics and clinical analytics, regulatory affairs, medical affairs, translational medicine, commercial operations, legal, contracts and corporate affairs, development operations, and investor and public relations.
Throughout Fiscal 2021 and Fiscal 2022 and through the date of this Report, strains of SARS-CoV-2, commonly referred to as COVID-19 and multiple variants of the virus, have spread globally and the outbreak has been declared a pandemic by the World Health Organization and a public health emergency in the U.S. by the U.S. Secretary of Health and Human Services. Operations at our headquarters in South San Francisco were significantly curtailed during Fiscal 2021 and the first half of Fiscal 2022, and, to some extent, periodically thereafter, while state and local restrictions required remote working conditions. Most of our employee additions since Fiscal 2021 are geographically located away from our headquarters facility in South San Francisco and routinely work remotely. Our employees have worked efficiently and productively while remotely-located and working from home whether as a result of the COVID-19 pandemic or otherwise. From time to time during the COVID-19 pandemic, however, the efficiency and productivity of certain preclinical and clinical development programs and our third-party collaborators, including, among others, contract research and development organizations (CROs), contract manufacturing organizations (CMOs) and other third-party service providers have been, and may be in the future, impacted by prevailing surges in the spread of variants of COVID-19, such as spreads induced by the Delta and Omicron variants and their sub-variants during Fiscal 2021, Fiscal 2022 and thereafter, shelter-in-place orders, social distancing measures, travel bans and restrictions, and certain business and government closures or reductions in service. From time to time since the beginning of the COVID-19 pandemic, we have experienced delays in the delivery of supplies of active pharmaceutical product (API) or other key materials required to continue development of PH94B and PH10, as well as temporary disruptions in the availability of third-party personnel and others involved in the conduct of our preclinical and clinical programs. Future unexpected delays may result in a significant, material delay or disruption to our current clinical and nonclinical development plans, programs, and operations.
We did not complete any capital-raising or other significant financing activities during the quarter ended June 30, 2022. In May 2021, we entered into an Open Market Sale Agreement SM (the Sales Agreement) with Jefferies LLC as sales agent (Jefferies), with respect to an at-the-market offering program (the ATM) under which we may, at our option, offer and sell, from time to time, shares of our common stock having an aggregate offering price of up to $75.0 million through Jefferies as our sales agent. During September and early October 2021, we sold an aggregate of 1,517,798 shares of our common stock and received gross cash proceeds of approximately $4.45 million under the ATM. We have not sold any shares under the ATM from October 2, 2021 through the date of this Report.
Given the results of PALISADE-1, we are carefully monitoring our cash resources and critically evaluating our internal and external research and development and general and administrative expenditures, which includes pausing recruitment and enrollment in PALISADE-2, ending enrollment in our PALISADE OLS, deferring multiple potential NDA-enabling nonclinical development and manufacturing activities of PH94B and pausing a substantial portion of PH94B pre-commercialization initiatives pending further assessment of the results of PALISADE-1 and assessment of the independent third-party interim analysis of PALISADE-2.
Results of Operations
Comparison of Three Months Ended June 30, 2022 and 2021
The following table summarizes the results of our operations for the three months ended June 30, 2022 and 2021 (amounts in thousands).
| Three Months Ended June 30, |
||||||||
| 2022 |
2021 |
|||||||
| Sublicense revenue |
$ | 310 | $ | 354 | ||||
| Operating expenses: |
||||||||
| Research and development |
15,291 | 5,457 | ||||||
| General and administrative |
4,792 | 2,643 | ||||||
| Total operating expenses |
20,083 | 8,100 | ||||||
| Loss from operations |
(19,773 | ) | (7,746 | ) | ||||
| Interest income, net |
2 | 5 | ||||||
| Loss before income taxes |
(19,771 | ) | (7,741 | ) | ||||
| Income taxes |
(5 | ) | (3 | ) | ||||
| Net loss |
(19,776 | ) | (7,744 | ) | ||||
| Accrued dividends on Series B Preferred Stock |
- | (362 | ) | |||||
| Net loss attributable to common stockholders |
$ | (19,776 | ) | $ | (8,106 | ) | ||
Revenue
We recognized $310,100 in sublicense revenue pursuant to the AffaMed Agreement in the quarter ended June 30, 2022, compared to $354,100 in the quarter ended June 30, 2021. As described more completely in Note 11, Sublicensing and Collaboration Agreements, to our Condensed Consolidated Financial Statements in Part I of this Report (Note 11), on June 24, 2020, we entered into the AffaMed Agreement, pursuant to which we received a non-refundable upfront license fee payment of $5.0 million on August 3, 2020, which payment permitted the commencement of our revenue recognition under the AffaMed Agreement. We expect to recognize an aggregate of approximately $2.5 million in revenue pursuant to this payment in future periods during our current fiscal year and thereafter, as described in Note 11. However, we are currently assessing the impact on completion of our performance obligations in light of the results of the PALISADE-1. We will adjust our estimates, as necessary, in subsequent periods as we obtain more definitive information on which to base our projections. While we may potentially receive additional cash payments and royalties in the future under the AffaMed Agreement in the event certain performance-based milestones and commercial sales are achieved, there can be no assurance that the AffaMed Agreement will provide any additional revenue beyond that noted or cash payments to us in the near term, or at all.
Research and Development Expense
Research and development (R&D) expense increased by $9.8 million, from $5.5 million for the quarter ended June 30, 2021 to $15.3 million for the quarter ended June 30, 2022. Expense related to conducting our PALISADE Phase 3 Program for PH94B, including PALISADE-1, PALISADE-2 and the PALISADE OLS study, and the PH94B Phase 2 Study in AjDA, as well as nonclinical development and outsourced manufacturing activities for both PH94B and PH10, accounted for the increased expenses of approximately $9.1 million during the quarter ended June 30, 2022 in relation to the comparable quarter in the prior year. As a result of pausing recruitment and enrollment in PALISADE-2, ending enrollment in the PALISADE OLS study and deferring certain previously projected NDA-enabling nonclinical and clinical development of PH94B subsequent to June 30, 2022, we expect R&D expense to decrease in subsequent periods, as compared to the period ended June 30, 2022.
Salaries and benefits expense for the quarter ended June 30, 2022 increased by approximately $345,000 versus the comparable prior-year quarter primarily due to the hiring of additional regulatory, clinical, CMC and data management personnel partially offset by a reduction in the accrual for estimated additional compensation expense resulting from the achievement of certain corporate objectives during the 2022 calendar year versus the 2021 calendar year. Noncash research and development expense, primarily stock-based compensation and depreciation in both periods, accounted for approximately $353,000 and $267,000 for the quarters ended June 30, 2022 and 2021, respectively. The following table indicates the primary components of research and development expense for each of the periods (amounts in thousands):
| Three Months Ended June 30, |
||||||||
| 2022 |
2021 |
|||||||
| Salaries and benefits |
$ | 1,652 | $ | 1,307 | ||||
| Stock-based compensation |
330 | 241 | ||||||
| Consulting and other professional services |
271 | 135 | ||||||
| Clinical and nonclinical studies and development expenses: |
||||||||
| PH94B and PH10 |
12,585 | 3,439 | ||||||
| AV-101 |
248 | 160 | ||||||
| All other |
16 | - | ||||||
| 12,849 | 3,599 | |||||||
| Rent |
130 | 153 | ||||||
| Depreciation |
18 | 20 | ||||||
| All other |
41 | 2 | ||||||
| Total Research and Development Expense |
$ | 15,291 | $ | 5,457 | ||||
The increase in salaries and benefits expense for the quarter ended June 30, 2022 primarily reflects the addition of eleven additional management and staff positions across multiple functional disciplines, including biostatistics and clinical analytics, clinical operations, chemistry, manufacturing and controls, and regulatory affairs during the period from July 2021 through June 2022. Also contributing to the increase is the impact of salary increases effective in January 2022 to our R&D management and staff. These increases are partially offset by a reduction of approximately $302,000 in the accrual for estimated additional compensation expense for R&D officers and employees pursuant to achievement of calendar year 2022 corporate operational objectives compared to the accrual at June 30, 2021 for achievement of calendar 2021 objectives. We are currently evaluating our salaries and benefit expense following the topline results of PALISADE-1 and the subsequent impact on other studies in our PALISADE Phase 3 development program. As of the date of this Report, we expect our R&D salary and benefit expense to remain consistent in subsequent periods.
Stock-based compensation expense for the quarter ended June 30, 2022 reflects the amortization of option grants made to our R&D staff and certain clinical and scientific consultants since May 2019, in addition to grants to new employees as indicated above. All outstanding options granted to R&D employees and consultants prior to May 2019 have become fully vested and amortized prior to the quarter ended June 30, 2022 and the May 2019 grants became fully vested in the current quarter. Grants awarded after June 30, 2021, including those granted to new employees, account for approximately $140,000 of expense in the quarter ended June 30, 2022, offset by an expense reduction of approximately $66,000 attributable to certain options granted between May 2019 and May 2020 that became fully vested and amortized prior to or during the quarter ended June 30, 2022. ESPP expense for the quarter ended June 30, 2022 was $15,900 compared to $2,300 in the quarter ended June 30, 2021.
Consulting and other professional services in both periods reflects fees incurred, generally on an as-needed basis, for project-based scientific, nonclinical and clinical development and regulatory advisory and analytical services rendered to us by third parties primarily in support of our PH94B and PH10 development initiatives. Expense for the quarter ended June 30, 2022 also includes nominal contract recruiting services for certain specialized R&D employee and consultant positions.
The significant increase in PH94B and PH10 clinical and nonclinical project expense during the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021 is primarily due to the conduct of PALISADE-1, which began in May 2021 as the initial study in the PH94B PALISADE Phase 3 Program in SAD, compared to conducting PALISADE-1, PALISADE-2, the PALISADE OLS study and the Phase 2A clinical trial of PH94B in AjDA during the quarter ended June 30, 2022 as well as additional nonclinical and preclinical development activities for PH94B and PH10 in both periods. During the quarters ended June 30, 2022 and 2021, manufacturing, formulation, validation and analysis of sufficient quantities of drug substance and drug product for the clinical trials and other developmental requirements were significant initiatives for advancing both PH94B and PH10. Due to its later stage of development, costs for PH94B initiatives have significantly exceeded those for PH10 during both Fiscal 2022 and Fiscal 2021. However, as a result of pausing of PALISADE-2 and ending enrollment in the PALISADE OLS study subsequent to June 30, 2022, we expect costs associated with our continued PH94B-related initiatives, including our Phase 2 AjDA study and other nonclinical studies of PH94B, to substantially decrease in subsequent periods. We anticipate an increase in clinical development expense associated with PH10 as we initiate U.S. Phase 1 development of PH10 to facilitate potential U.S. Phase 2B development of PH10 for treatment of MDD. In both periods, AV-101 project expense includes costs for certain preclinical studies related to the use of AV-101 with adjunctive probenecid and certain AV-101 manufacturing stability studies. Expense in the quarter ended June 30, 2022 also includes the impact of our ongoing exploratory Phase 1B AV-101 and probenecid clinical trial.
Rent expense for both periods reflects our implementation of ASC 842 and the requirement to recognize, as an operating lease related to our South San Francisco office and laboratory facility, a right-of-use asset and a lease liability, both of which must be amortized over the expected lease term. The underlying lease reflects commercial property rents prevalent in the South San Francisco real estate market at the time of our November 2016 lease amendment extending the lease of our headquarters facilities in South San Francisco by five years from July 31, 2017 to July 31, 2022. As disclosed in Note 10, Commitments and Contingencies, in the Condensed Consolidated Financial Statements in Part I of this Report, in October 2021, we entered into an amendment to this lease, pursuant to which the term of the lease was extended from August 1, 2022 to July 31, 2027 and the base rent under the lease for the five-year extension period was specified. We allocate total rent expense for our South San Francisco facility between R&D expense and G&A expense based generally on square footage dedicated to each function. In both periods reported, rent expense includes charges for such items as common area maintenance fees, taxes and insurance which are generally assessed to us by our landlord.
General and Administrative Expense
General and administrative (G&A) expense increased by approximately $2.2 million to approximately $4.8 million for the quarter ended June 30, 2022, compared to approximately $2.6 million for the quarter ended June 30, 2021. Certain pre-commercialization market research studies and analyses initiated during the quarter ended June 30, 2022 in expectation of positive PALISADE-1 results contributed approximately $1.2 million to the increase. We are currently evaluating the extent and timing of such future activities, although it is not currently anticipated that such expenditures will recur in the short term at or near the same level as expended during the quarter ended June 30, 2022. Salary and benefits expense and stock-based compensation increased as a result of new G&A employees hired between July 2021 and June 2022 and related option grants upon employment, partially offset by a reduction in the accrual for estimated additional compensation expense resulting from the achievement of certain corporate objectives during the 2022 calendar year versus the 2021 calendar year. Insurance expense increased in the quarter ended June 30, 2022 as a result of increased coverage amounts and new coverages added to our insurance portfolio. In the quarter ended June 30, 2021, we expensed, as a noncash charge, $232,000 of deferred offering costs attributable to a previous financing arrangement that we terminated in June 2021. Noncash general and administrative expense, approximately $673,000 and $632,000 in the quarters ended June 30, 2022 and 2021, respectively, primarily reflects stock-based compensation and depreciation in 2022 and stock based compensation, depreciation, and the write-off of the deferred offering costs in 2021. The following table indicates the primary components of general and administrative expense for each of the periods (amounts in thousands):
| Three Months Ended June 30, |
||||||||
| 2022 |
2021 |
|||||||
| Salaries and benefits |
$ | 1,092 | $ | 951 | ||||
| Stock-based compensation |
627 | 350 | ||||||
| Board fees and other consulting services |
150 | 81 | ||||||
| Legal, accounting and other professional fees |
693 | 474 | ||||||
| Investor and public relations |
401 | 136 | ||||||
| Pre-launch marketing studies and analyses |
1,301 | 102 | ||||||
| Insurance |
330 | 122 | ||||||
| Travel expenses |
19 | 1 | ||||||
| Sublicense contract amortized acquisition expense |
29 | 33 | ||||||
| Rent and utilities |
93 | 117 | ||||||
| Write off of deferred offering costs |
- | 232 | ||||||
| All other expenses |
57 | 44 | ||||||
| $ | 4,792 | $ | 2,643 | |||||
The increase in salaries and benefits expense for the quarter ended June 30, 2022 primarily results from the full-quarter impact of the addition of our Chief Commercial Officer in May, and the additions of our Vice President, Medical Affairs in October 2021, our Vice President, Strategic Insights and Analytics in November 2021, our Vice President, Human Resources in January 2022, our Chief Legal Officer in May 2022 and two other administrative employees in August 2021 and June 2022. Also contributing to the increase is the impact of salary increases effective beginning in January 2022 granted to members of our management and administrative staff. Offsetting this increase is a reduction of approximately $207,000 in the accrual at June 30, 2022 for estimated additional compensation expense for officers and administrative employees pursuant to achievement of calendar year 2022 corporate operational objectives compared to the accrual at June 30, 2021 for achievement of calendar year 2021 objectives. As of the date of this Report, we expect our G&A salary and benefit expense to remain consistent in subsequent periods.
Stock-based compensation expense for the quarter ended June 30, 2022 reflects the amortization of option grants made to our G&A officers and staff and certain consultants since May 2019, in addition to grants to new employees as indicated above. With the exception of options granted in May 2019 and September 2019, all outstanding options granted to G&A employees and consultants prior to October 2020 have become fully vested and amortized prior to the quarter ended June 30, 2022 and the May 2019 grants became fully vested in the current quarter. Grants awarded after June 30, 2021, including those granted to new employees, account for approximately $426,000 of expense in the quarter ended June 30, 2022, offset by an expense reduction of approximately $150,000 attributable to certain options granted between May 2019 and June 2020 that became fully vested and amortized prior to or during the quarter ended June 30, 2022. ESPP expense for the quarter ended June 30, 2022 was approximately $4,900 compared to $2,700 in the quarter ended June 30, 2021.
Board fees and other consulting services represents, in both periods, fees paid as consideration for Board and Board Committee services to the independent members of our Board of Directors. We modified our cash compensation policy for our independent Board members at the beginning of Fiscal 2022, increasing payments to reflect current market conditions and we added one new independent Board member in April 2021 and two additional independent members during July 2021. Expenses for the quarter ended June 30, 2022 also include recruiting fees for certain administrative positions.
Legal, accounting and other professional fees for both periods include expenses related to routine and project-based legal services as well as accounting services related to the audit of our annual financial statements. Expense for both periods includes the cost of certain outsourced financial and accounting services and our information technology service provider. Expense in the quarter ended June 30, 2021 also included costs related to our implementation of new accounting software. Expense in both periods also includes legal counsel and other costs related to patent prosecution and protection pursuant to our stem cell technology license agreements, our AV-101 patents, or patents that we have elected to pursue for commercial purposes, recurring annual license fees, and costs we have incurred to advance various patent applications in the U.S. and numerous foreign countries, primarily with respect to AV-101 and our stem cell technology platform, but also nominally with respect to our PH94B and PH10 intellectual property portfolios.
Investor and public relations expense in both periods includes the fees of our various external service providers for a broad spectrum of investor relations, public relations and social media services, and, primarily in the quarter ended June 30, 2022, additional market awareness and strategic advisory and support functions and initiatives. During both years, we conducted numerous virtual meetings and other communication activities focused on expanding global market awareness of the Company, our CNS product candidate pipeline and technologies and our research and development programs, including among registered investment professionals and investment advisors, individual and institutional investors, and prospective strategic collaborators for development and commercialization of our product candidates in major pharmaceutical markets worldwide.
During both periods, we incurred expenses for a number of pre-commercialization studies, analyses, projections, strategic modeling and awareness services, primarily attributable to PH94B as a potential acute treatment of anxiety in adults with SAD. Given the results of PALISADE-1 and the resulting delay to our anticipated commercialization timeline for PH94B, we expect these expenditures to substantially decrease as we pause pre-commercialization initiatives pending the results of the independent third-party interim analysis of PALISADE-2.
The increase in insurance expense is primarily attributable to the increased coverage obtained under our directors’ and officers’ liability insurance upon renewal of our policy in May 2022 and additional coverages, including cybersecurity, added to our insurance program during Fiscal 2022.
As a result of periodic shelter-in-place restrictions and travel and workplace precautions and restrictions associated with the COVID-19 pandemic continuing throughout both Fiscal 2021 and Fiscal 2022, management presentations and historically in-person meetings held in multiple U.S. markets and certain international markets with existing and potential individual and institutional investors, investment professionals and advisors, media, and securities analysts, as well as various investor relations, market awareness and corporate development and partnering initiatives, have generally occurred remotely without requiring in-person business travel by our executives. We incurred nominal travel expense in the quarter ended June 30, 2022 for attendance at seminars, and for vendor audits, clinical trial site visits and certain investor-focused events, as conditions have permitted.
Rent expense for both periods reflects our implementation of ASC 842 and the requirement to recognize, as an operating lease related to our South San Francisco office and laboratory facility, a right-of-use asset and a lease liability, both of which must be amortized over the expected lease term. The underlying lease reflects commercial property rents prevalent in the South San Francisco real estate market at the time of our November 2016 lease amendment extending the lease of our headquarters facilities in South San Francisco by five years from July 31, 2017 to July 31, 2022. As disclosed in Note 10, Commitments and Contingencies, in the Condensed Consolidated Financial Statements in Part I of this Report, in October 2021, we entered into an amendment to this lease, pursuant to which the term of the lease was extended from August 1, 2022 to July 31, 2027 and the base rent under the lease for the five-year extension period was specified. We allocate total rent expense for our South San Francisco facility between R&D expense and G&A expense based generally on square footage dedicated to each function. In both periods reported, rent expense includes charges for such items as common area maintenance fees, taxes and insurance which are generally assessed to us by our landlord.
Beginning in the quarter ended September 30, 2020, we began to amortize the deferred contract acquisition costs related to our acquisition of the AffaMed Agreement, composed of the cash payment of $220,000 for sublicense fees which we were obligated to make pursuant to our PH94B license from Pherin, and the $125,000 cash payment and $125,000 fair value of common stock issued for consulting services, in each case exclusively related to our acquisition of the AffaMed Agreement. The contract acquisition costs are amortized over the expected term of the services to be provided under the AffaMed Agreement. During the quarters ended June 30, 2022 and 2021, we amortized $29,100 and $33,300, respectively, of contract acquisition costs.
In June 2021, we terminated the equity line agreement with Lincoln Park Capital. Upon termination of the agreement, we expensed the remaining $232,100 of deferred offering costs related to the agreement as a noncash charge to G&A expense.
Interest and Other Expense
Interest income, net totaled $2,300 for the quarter ended June 30, 2022, compared to $5,100 for the quarter ended June 30, 2021. The following table indicates the primary components of interest income and expense for each of the periods (amounts in thousands):
| Three Months Ended June 30, |
||||||||
| 2022 |
2021 |
|||||||
| Interest income |
$ | 6 | $ | 5 | ||||
| Interest expense on financing lease and insurance premium financing note |
(4 | ) | - | |||||
| Interest income, net |
$ | 2 | $ | 5 | ||||
For the quarters ended June 30, 2022 and 2021, interest income relates to cash deposits in interest-bearing cash equivalent accounts. Interest expense for the quarter ended June 30, 2022 relates to interest paid on the insurance premium financing note and in both periods on our financing lease of office equipment subject to ASC 842. We did not finance insurance premiums for policies that renewed in February 2021 or February 2022 or in May 2021.
We recognized approximately $361,800 during the quarter ended June 30, 2021 attributable to the 10% cumulative dividend accrued on then-outstanding shares of our Series B 10% Convertible Preferred Stock (Series B Preferred) as an additional deduction in arriving at net loss attributable to common stockholders in the Condensed Consolidated Financial Statements. In November 2021, the custodial holder of 1,131,669 outstanding shares of our Series B Preferred exercised its rights for conversion into common stock under the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series B 10% Convertible Preferred Stock (Series B Certificate of Designation) and we issued 1,131,669 shares of our common stock upon conversion. From initial issuance in May 2015 through the time of conversion in November 2021, the Series B Preferred had accrued 10% dividends aggregating $7,217,800 and, in accordance with the terms of the Series B Certificate of Designation, we issued 3,295,778 shares of our unregistered common stock in payment of the accrued dividends. Following this conversion there were no additional shares of Series B Preferred outstanding and no further accrual of dividends on the Series B Preferred.
Liquidity and Capital Resources
Since our inception in May 1998 through June 30, 2022, we have financed our operations and technology acquisitions primarily through the issuance and sale of our equity and debt securities for cash proceeds of approximately $208.7 million, as well as from an aggregate of approximately $22.7 million of government research grant awards (excluding the fair market value of government sponsored and funded clinical trials), strategic collaboration payments and intellectual property licensing, and other revenues. Additionally, we have issued equity securities with an approximate value at issuance of $38.2 million in noncash acquisitions of product licenses and in settlements of certain liabilities, including liabilities for professional services rendered to us or as compensation for such services.
During Fiscal 2022, holders of outstanding warrants to purchase an aggregate of approximately 7.3 million shares of our common stock exercised such warrants, and we received cash proceeds of approximately $6.2 million. In May 2021, we entered into an Open Market Sale Agreement SM (the Sales Agreement) with respect to an at-the-market offering program (the ATM) under which we may offer and sell, from time to time, shares of our common stock having an aggregate offering price of up to $75.0 million through our sales agent. During Fiscal 2022, we sold an aggregate of 1,517,798 shares of our common stock and received net cash proceeds of approximately $4.3 million under the ATM. We have not sold any additional shares of our common stock under the Sales Agreement from October 2, 2021 through the date of this Report. During our fiscal year ended March 31, 2021 (Fiscal 2021), we received approximately $119 million in net cash proceeds, primarily from public offerings conducted in August 2020 and December 2020, the exercise of approximately 6.4 million outstanding warrants and the upfront license payment pursuant to our sublicense and collaboration agreement for PH94B (the AffaMed Agreement), which is described more completely in Note 11, Sublicensing and Collaboration Agreements. The financings and other transactions consummated during Fiscal 2022 and Fiscal 2021 have been the primary sources of our liquidity during Fiscal 2022 and in our current fiscal year. During the quarter ended June 30, 2022, we received approximately $156,100 in proceeds from the exercise of outstanding stock options and sales under our 2019 Employee Stock Ownership Program (the ESPP).
We had cash and cash equivalents of approximately $52.0 million at June 30, 2022, which we believe is sufficient to fund our planned operations for at least the twelve months following the issuance of these financial statements, and indicating our ability to continue as a going concern. We are continuing to evaluate our cash resources given the results of PALISADE-1 and our decisions to (i) pause recruitment and enrollment in PALISADE-2 pending our assessment of an independent third-party interim analysis of current data from subjects randomized in PALISADE-2 to date, and (ii) ending enrollment in the PALISADE OLS study of PH94B. We are also evaluating the resulting implications for the conduct and timing of other clinical trials and the development, regulatory and potential commercialization initiatives for PH94B and our other product candidates. At a minimum, certain of these activities will be deferred or cancelled in the near term, which is expected to reduce the cash required to fund our operations. Moreover, as we have not yet developed products that generate recurring revenue and, in the event we successfully complete future clinical and/or nonclinical programs, we will need to invest substantial additional capital resources to commercialize any of our drug candidates.
When necessary and advantageous, we will seek additional financial resources to fund our planned operations through (i) sales of our equity and/or debt securities in one or more public offerings and/or private placements, (ii) the exercises of some or all of the currently outstanding warrants prior to their expiration, (iii) strategic licensing and development collaborations, and/or (iv) government grants and research awards. Subject to certain restrictions, our Registration Statement on Form S-3 (the S-3 Shelf Registration Statement) remains available for future sales of our equity securities in one or more public offerings from time to time. While we may make additional sales of our equity securities under the S-3 Shelf Registration Statement, we do not have an obligation to do so.
In addition to the potential sale our equity and/or debt securities, we may also seek to enter research, development and/or commercialization collaborations similar to the AffaMed Agreement to provide non-dilutive funding for our operations, while also reducing a portion of our future cash outlays and working capital requirements. Although we may seek additional collaborations that could generate revenue and/or provide non-dilutive funding for development and commercialization of our product candidates, no assurance can be provided that any such collaborations, awards or agreements will occur in the future.
Our future working capital requirements will depend on many factors, including, without limitation, potential impacts related to the on-going COVID-19 pandemic, the scope and nature of opportunities related to our success and the success of certain other companies in nonclinical and clinical trials, including our development and commercialization of our current product candidates, the availability of, and our ability to enter into collaborations on terms acceptable to us. To further advance the clinical development of PH94B, PH10, and AV-101, as well as support our operating activities, we plan to continue to carefully manage our routine operating costs and our clinical and nonclinical programs and, when appropriate, pre-launch commercialization initiatives.
Notwithstanding the foregoing, there can be no assurance that our current strategic collaboration under the AffaMed Agreement will generate revenue from future potential milestone payments, or that future financings or other strategic collaborations will be available to us in sufficient amounts, in a timely manner, or on terms acceptable to us, if at all. If we are unable to obtain additional financing on a timely basis when needed, our business, financial condition, and results of operations may be harmed, the price of our stock may decline, we may be required to reduce, defer, or discontinue certain of our research and development activities and we may not be able to continue as a going concern. The Condensed Consolidated Financial Statements do not include any adjustments that might result from the negative outcome of this uncertainty.
Cash and Cash Equivalents
The following table summarizes changes in cash and cash equivalents for the periods stated (in thousands):
| Three Months Ended June 30, |
||||||||
| 2022 |
2021 |
|||||||
| Net cash used in operating activities |
$ | (15,968 | ) | $ | (6,173 | ) | ||
| Net cash used in investing activities |
(175 | ) | (150 | ) | ||||
| Net cash provided by (used in) financing activities |
(6 | ) | 992 | |||||
| Net decrease in cash and cash equivalents |
(16,149 | ) | (5,331 | ) | ||||
| Cash and cash equivalents at beginning of period |
68,135 | 103,108 | ||||||
| Cash and cash equivalents at end of period |
$ | 51,986 | $ | 97,777 | ||||
As described above, the combination of the net proceeds we received from public offerings in Fiscal 2021, from transactions under our ATM in Fiscal 2022 and from warrant exercises in both Fiscal 2021 and Fiscal 2022, have been the primary sources of our available cash during Fiscal 2022 and in the quarter ended June 30, 2022. The increase in cash used in operations during the quarter ended June 30, 2022 reflects the continued operation of PH94B clinical trials including PALISADE-1, PALISADE-2, the PALISADE OLS, and the Phase 2 AjDA study, as well as ongoing manufacturing initiatives and other nonclinical studies of our product candidates. Additionally, during Fiscal 2022, we expanded our internal capabilities with the addition of numerous senior personnel with significant expertise in disciplines critical to the advancement of our product pipeline. In both periods, but to a much greater extent in the quarter ended June 30, 2022, in parallel with our clinical and regulatory initiatives, and in expectation of positive results from the PALISADE Phase 3 studies, we have engaged in customary pre-commercialization analyses, modeling, planning and awareness initiatives. Given the results of the PALISADE-1 study, we are currently evaluating the extent and timing of such future activities. Cash used in investing activities in the quarter ended June 30, 2022 reflects laboratory analytical equipment acquired for our internal studies and experiments on both PH94B and PH10 and cash used in the quarter ended June 30, 2021 primarily reflects the cost of laboratory analytical equipment acquired for use by our CMO in connection with the development and production of PH94B drug product. Cash used by financing activities in the quarter ended June 30, 2022 is primarily the result of the proceeds of option exercises and the purchase of common stock under our ESPP, net of a principal payment on our insurance premium financing note and expenditures related to the ATM transaction with Jefferies and recorded as deferred offering costs. Cash provided by financing activities in the quarter ended June 30, 2021 is primarily the result of warrant exercises, net of expenditures related to the ATM transaction with Jefferies and recorded as deferred offering costs.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Recent Accounting Pronouncements
For information relating to recent accounting pronouncements and the expected impact of such pronouncements on our condensed consolidated financial statements, see Note 3 of the Notes to Condensed Consolidated Financial Statements included In Part I of this Report.
| CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this Report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Report were effective.
Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) from that described in our Annual Report on Form 10-K for our fiscal year ended March 31, 2022, filed with the Securities and Exchange Commission (SEC) on June 23, 2022, that occurred during the quarter ended June 30, 2022, to which this Report relates, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None.
Risk Factor Summary
Our business is subject to substantial risk and an investment in our securities involves various risks. Some of the material risks include those set forth below. You should consider carefully these risks, and those discussed under “Risk Factors” below, before investing in our securities. These risks include, among others:
| ● |
Failures of our current and/or future clinical studies of our product candidates, or delays in the commencement of completion of our clinical trials, could result in increased costs to us and could delay, prevent or limit our ability to generate revenue and continue our business; |
| ● |
we are a development stage biopharmaceutical company with no recurring revenues from product sales or approved products, and limited experience developing or commercializing new drug candidates, which makes it difficult to assess our future viability; |
| ● |
we depend heavily on the success of our current CNS product candidates, PH94B, PH10 and AV-101, and we cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, any of our current or future product candidates; |
| ● |
if we are unable to retain or attract key management and scientific personnel, we may be unable to successfully produce, develop and commercialize our product candidates; |
| ● |
the successful completion of clinical or nonclinical studies in any of our development programs may not be sufficient to cause the FDA to approve of any NDA that we may submit or cause any other agency to provide regulatory approval of any of our product candidates and, even if approved, does not ensure acceptance of such product candidates by clinicians leading to a revenue stream to support our operations; |
| ● |
the COVID-19 pandemic has had, and may continue to have, an impact on our business, including delays and potential delays in manufacturing and testing of certain drug substance and drug products, potential delays in recruitment and enrollment in our planned clinical and nonclinical studies of our product candidates and potential impact of the results of our clinical and nonclinical studies of our product candidates; |
| ● |
we face significant competition, and if we are unable to compete effectively, we may not be able to achieve or maintain significant market penetration or improve our results of operations; |
| ● |
if we are unable to adequately protect our proprietary technology, or obtain and maintain issued patents that are sufficient to protect our product candidates, others could compete against us more directly, which would have a material adverse impact on our business, results of operations, financial condition and prospects; |
| ● |
we have incurred significant net losses since inception and we will continue to incur substantial operating losses for the foreseeable future; |
| ● |
we require substantial additional financing to execute our long-term business plan, including further development and commercialization of our CNS product candidates, and to continue to operate as a going concern; |