vtgn10q_june302020
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
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☑
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2020
or
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from
to
.
Commission File Number: 001-37761
VistaGen Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
Nevada
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20-5093315
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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343 Allerton Avenue
South San Francisco, CA 94080
(Address of principal executive offices including zip
code)
(650) 577-3600
(Registrant’s telephone number, including area
code)
Securities registered pursuant to Section 12(b) of the
Act:
Title of each class
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Trading Symbol(s)
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Name of each exchange on which
registered
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Common
Stock, par value $0.001 per share
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VTGN
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Nasdaq
Capital Market
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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. Yes ☒ No ☐
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). Yes ☒
No ☐
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.
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Large accelerated filer
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[ ]
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Accelerated filer
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[ ]
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Non-Accelerated filer
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[ ]
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Smaller reporting company
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[X]
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Emerging growth company
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[ ]
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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
☐ No ☒
As of August 13, 2020, 73,998,057 shares of the registrant’s
common stock, $0.001 par value, were issued and
outstanding.
VistaGen Therapeutics, Inc.
Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 2020
TABLE OF CONTENTS
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Page
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1
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2
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3
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4
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5
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19
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30
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31
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31
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69
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69
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69
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70
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
(Unaudited)
VISTAGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Dollars, except share amounts)
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$1,545,900
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$1,355,100
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Prepaid
expenses and other current assets
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633,000
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225,100
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Total
current assets
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2,178,900
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1,580,200
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Property
and equipment, net
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184,200
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209,600
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Right
of use asset - operating lease
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3,492,100
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3,579,600
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Deferred
offering costs
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263,900
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355,100
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Security
deposits and other assets
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47,800
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47,800
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$6,166,900
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$5,772,300
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LIABILITIES AND STOCKHOLDERS’ DEFICIT
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Current
liabilities:
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Accounts
payable
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$1,307,300
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$1,836,600
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Accrued
expenses
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607,800
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561,500
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Current
notes payable, including accrued interest
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428,900
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56,500
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Operating
lease obligation - current portion
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325,700
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313,400
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Financing
lease obligation - current portion
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3,400
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3,300
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Total
current liabilities
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2,673,100
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2,771,300
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Non-current
liabilities:
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Non-current
portion of notes payable
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124,700
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-
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Accrued
dividends on Series B Preferred Stock
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5,347,600
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5,011,800
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Operating
lease obligation - non-current portion
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3,631,100
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3,715,600
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Financing
lease obligation - non-current portion
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2,100
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3,000
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Total
non-current liabilities
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9,105,500
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8,730,400
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11,778,600
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11,501,700
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Commitments
and contingencies (Note 10)
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Stockholders’
equity (deficit):
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Preferred
stock, $0.001 par value; 10,000,000 shares authorized at June 30,
2020 and March 31, 2020:
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Series
A Preferred, 500,000 shares authorized, issued and outstanding at
June 30, 2020 and March 31, 2020
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500
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500
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Series
B Preferred; 4,000,000 shares authorized at June 30, 2020 and March
31, 2020; 1,160,240 shares
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issued
and outstanding at June 30, 2020 and March 31, 2020
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1,200
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1,200
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Series
C Preferred; 3,000,000 shares authorized at June 30, 2020 and March
31, 2020; 2,318,012 shares
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issued
and outstanding at June 30, 2020 and March 31, 2020
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2,300
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2,300
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Common
stock, $0.001 par value; 175,000,000 shares authorized at June 30,
2020 and March 31, 2020;
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55,937,472
and 49,348,707 shares issued and outstanding at June 30, 2020 and
March 31, 2020, respectively
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Additional
paid-in capital
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203,330,700
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200,092,800
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Treasury
stock, at cost, 135,665 shares of common stock held at June 30,
2020 and March 31, 2020
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(3,968,100)
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(3,968,100)
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(205,034,200)
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(201,907,400)
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Total
stockholders’ deficit
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(5,611,700)
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(5,729,400)
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Total
liabilities and stockholders’ deficit
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$6,166,900
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$5,772,300
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See accompanying notes to Condensed Consolidated Financial
Statements.
VISTAGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
(Unaudited)
(Amounts in dollars, except share amounts)
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Three Months Ended June 30,
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Operating
expenses:
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Research
and development
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$1,731,200
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$4,313,900
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General
and administrative
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1,390,600
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1,910,100
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Total
operating expenses
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3,121,800
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6,224,000
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Loss
from operations
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(3,121,800)
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(6,224,000)
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Other
income (expenses), net:
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Interest
income (expense), net
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(3,200)
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16,500
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Other
income
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600
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-
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Loss
before income taxes
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(3,124,400)
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(6,207,500)
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Income
taxes
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(2,400)
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(2,400)
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Net
loss and comprehensive loss
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$(3,126,800)
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$(6,209,900)
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Accrued
dividends on Series B Preferred stock
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(335,800)
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(302,500)
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Net
loss attributable to common stockholders
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$(3,462,600)
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$(6,512,400)
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Basic
and diluted net loss attributable to common
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stockholders
per common share
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$(0.07)
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$(0.15)
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Weighted
average shares used in computing
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basic
and diluted net loss attributable to common
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stockholders
per common share
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51,321,355
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42,622,965
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See accompanying notes to Condensed Consolidated Financial
Statements.
VISTAGEN THERAPEUTICS,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Dollars)
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Three Months Ended June 30,
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Cash
flows from operating activities:
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Net
loss
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$(3,126,800)
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$(6,209,900)
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Adjustments to reconcile net loss to net cash used in
operating activities:
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Depreciation
and amortization
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25,400
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26,200
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Stock-based
compensation
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674,600
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1,063,000
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Amortization
of fair value of common stock issued for services
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-
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69,100
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Amortization
of fair value of warrants issued for services
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10,300
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Changes
in operating assets and liabilities:
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Receivable
from supplier
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300,000
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Prepaid
expenses and other current assets
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39,200
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(80,900)
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Right
of use asset - operating lease
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87,500
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81,700
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Operating
lease liability
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(72,200)
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(61,100)
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Accounts
payable and accrued expenses
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(434,400)
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40,200
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Net
cash used in operating activities
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(2,806,700)
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(4,761,400)
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Cash
flows from property and investing activities:
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Net
cash used in investing activities
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-
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-
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Cash
flows from financing activities:
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Net
proceeds from issuance of common stock and warrants, including
Units
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62,600
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-
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Expense
related to registration of shares underlying outstanding
warrants
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(29,400)
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-
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Net
proceeds from sale of common stock under equity line
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2,790,600
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Proceeds
from issuance of note under Payroll Protection Plan
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224,400
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-
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Repayment
of capital lease obligations
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(800)
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(700)
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Repayment
of notes payable
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(49,900)
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(41,100)
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Net
cash provided by (used in) financing activities
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2,997,500
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(41,800)
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Net
increase (decrease) in cash and cash equivalents
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190,800
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(4,803,200)
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Cash
and cash equivalents at beginning of fiscal year
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1,355,100
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13,100,300
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Cash
and cash equivalents at end of fiscal year
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$1,545,900
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$8,297,100
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Supplemental
disclosure of noncash activities:
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Insurance
premiums settled by issuing note payable
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$322,200
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$230,200
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Accrued
dividends on Series B Preferred
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$335,800
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$320,600
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See accompanying notes to Condensed Consolidated Financial
Statements.
VISTAGEN THERAPEUTICS,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2020
(Unaudited)
(Amounts in Dollars, except share amounts)
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Equity
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Balances at March 31, 2019
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500,000
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$500
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1,160,240
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$1,200
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2,318,012
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$2,300
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42,758,630
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$42,800
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$192,129,900
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$(3,968,100)
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$(181,133,400)
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$7,075,200
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Accrued
dividends on Series B Preferred stock
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-
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-
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-
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-
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-
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-
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-
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-
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(302,500)
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-
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-
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(302,500)
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Stock-based
compensation expense
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-
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-
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-
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-
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-
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-
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-
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-
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1,063,000
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-
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-
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1,063,000
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Net
loss for the quarter ended June 30, 2019
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-
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-
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-
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-
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-
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-
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-
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-
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-
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-
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(6,209,900)
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(6,209,900)
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Balances at June 30, 2019
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500,000
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$500
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1,160,240
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$1,200
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2,318,012
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$2,300
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42,758,630
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$42,800
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$192,890,400
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$(3,968,100)
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$(187,343,300)
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$1,625,800
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Balances at March 31, 2020
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500,000
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$500
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1,160,240
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$1,200
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2,318,012
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$2,300
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49,348,707
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$49,300
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$200,092,800
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$(3,968,100)
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$(201,907,400)
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$(5,729,400)
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Proceeds
from sale of units of common stock and warrants
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for
cash in private placement
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-
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-
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-
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-
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-
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-
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125,000
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200
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49,800
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-
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-
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50,000
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Net
proceeds from sale of common stock under equity line
|
-
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-
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-
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-
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-
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-
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6,201,995
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6,200
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2,741,300
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-
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-
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2,747,500
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Issuance
of common stock at fair value for professional
services
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-
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-
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-
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-
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-
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-
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233,645
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200
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124,800
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-
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-
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125,000
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Sale
of common stock pursuant to 2019 Employee Stock
|
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Purchase
Plan
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-
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-
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-
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-
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-
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-
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28,125
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-
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12,600
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-
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-
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12,600
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Expenses
related to S-3 registration statement for shares
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underlying
outstanding warrants
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-
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-
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-
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-
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-
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-
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-
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-
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(29,400)
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-
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-
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(29,400)
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Accrued
dividends on Series B Preferred stock
|
|
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|
-
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-
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(335,800)
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-
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-
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(335,800)
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Stock-based
compensation expense
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-
|
-
|
-
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-
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-
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-
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-
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-
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674,600
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-
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-
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674,600
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Net
loss for the quarter ended June 30, 2020
|
-
|
-
|
-
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-
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-
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-
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-
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-
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-
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-
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(3,126,800)
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(3,126,800)
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Balances at June 30, 2020
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500,000
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$500
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1,160,240
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$1,200
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2,318,012
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$2,300
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55,937,472
|
$55,900
|
$203,330,700
|
$(3,968,100)
|
$(205,034,200)
|
$(5,611,700)
|
See accompanying notes to Condensed Consolidated Financial
Statements.
VISTAGEN THERAPEUTICS,
INC.
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 biopharmaceutical company committed
to developing new generation therapies for anxiety, depression and
certain additional central nervous system (CNS) disorders for which we believe
current treatment options are inadequate, resulting in high unmet
need in multiple CNS markets worldwide. Our pipeline includes three
clinical-stage CNS product candidates, PH94B, PH10 and AV-101, each
with a differentiated mechanism of action, an exceptional safety
profile in all clinical studies to date, and therapeutic potential
in multiple CNS indications. We are currently preparing PH94B for
Phase 3 clinical development for the acute treatment of anxiety in
adult patients with social anxiety disorder (SAD). We are also preparing PH94B for
an exploratory Phase 2A open-label clinical study in adult patients
experiencing adjustment disorder with anxiety (AjDA), including, but not limited to,
AjDA as a result of the diverse impact of the COVID-19 pandemic
(e.g., anxiety regarding health and safety, economic loss,
unemployment, social isolation, remote education and work, etc.),
as well as recent social unrest. PH10 has completed successful
exploratory Phase 2A clinical development as a new generation
treatment for major depressive disorder (MDD). We are currently preparing PH10
for Phase 2B clinical development as a potential stand-alone
treatment for MDD that is fundamentally different from all current
MDD therapies. In several clinical studies, we have established
that AV-101 is orally available and has an excellent safety
profile. Based on successful preclinical studies involving AV-101
alone and in combination with probenecid, we are currently
assessing additional preclinical data and potential Phase 1B
development of AV-101, in combination with probenecid, for
treatment of several CNS indications involving abnormal function of
the NMDAR (N-methyl-D-aspartate
receptor). Additionally, our subsidiary, VistaStem
Therapeutics (VistaStem),
has pluripotent stem cell technology focused on assessing and
developing potential small molecule new chemical entities
(NCEs) for our CNS
pipeline, or for out-licensing, by utilizing CardioSafe 3D™, VistaStem’s
customized human heart cell-based cardiac bioassay system. Our goal
is to become a fully integrated biopharmaceutical company that
develops and commercializes innovative medicine for large and
growing neuropsychiatry and neurology markets worldwide where we
believe current treatments are inadequate to meet the needs of
millions of patients.
Our Product Candidates
PH94B
is a novel, first-in-class neuroactive nasal spray with therapeutic
potential in a wide range of indications involving anxiety or
phobia. Self-administered in microgram-level doses, PH94B does not
require systemic uptake and distribution to produce its rapid-onset
anti-anxiety effects. We are initially developing PH94B as a
potential rapid-onset (within 15 minutes), non-sedating,
non-addictive new generation acute treatment of anxiety in adult
patients with SAD, and as an acute treatment for adult patients
with AjDA. With its rapid-onset pharmacology, lack of systemic
exposure and excellent safety profile, we believe PH94B also has
potential as a novel treatment for postpartum anxiety (PPA), post-traumatic stress disorder
(PTSD), preoperative
anxiety (POA), panic
disorder and other anxiety-related disorders. The FDA has granted
Fast Track designation for development of PH94B as a potential
acute treatment of anxiety in adults with SAD.
PH10 is
an odorless, fast-acting synthetic neurosteroid delivered
intranasally that has therapeutic potential in a wide range of
neuropsychiatric indications involving depression.
Self-administered in microgram-level doses, PH10 does not require
systemic uptake and distribution to produce its rapid-onset
antidepressant effects. We are initially developing PH10 as a
potential rapid-onset, non-sedating, non-addictive new generation
stand-alone treatment of MDD. With its rapid-onset pharmacology,
lack of systemic exposure, and exceptional safety profile in all
studies to date, we believe PH10 also has potential as a novel
treatment for postpartum depression (PPD), treatment-resistant depression
(TRD) and suicidal ideation
(SI).
AV-101
(4-Cl-KYN) is a novel, oral prodrug that targets the NMDAR, an
ionotropic glutamate receptor in the brain. Abnormal NMDAR function
is associated with numerous CNS diseases and disorders.
AV-101’s active metabolite, 7-chloro-kynurenic acid
(7-Cl-KYNA), is a potent
and selective full antagonist of the glycine coagonist site of the
NMDAR that inhibits the function of the NMDAR, but does not block
the NMDAR receptor like ketamine and other NMDAR antagonists. We
have demonstrated in clinical trials that AV-101 is
orally-available, well-tolerated and does not cause dissociative or
hallucinogenic psychological side effects or safety concerns
similar to those that may be caused by other NMDAR antagonists.
With its exceptionally few side effects and excellent safety
profile, we believe AV-101 has potential to be an oral, new
generation treatment for multiple CNS indications involving
abnormal NMDAR function and where current treatments are inadequate
to meet high unmet patient needs. The FDA has granted Fast Track
designation for development of AV-101 as both a potential
adjunctive treatment for MDD and as a non-opioid treatment for
neuropathic pain (NP). We
are currently assessing AV-101’s potential in combination
with probenecid, to treat both MDD and NP, as well as dyskinesia
associated with levodopa therapy for Parkinson’s disease,
epilepsy and suicidal ideation.
VistaStem
is applying pluripotent stem cell (hPSC) technology and CardioSafe 3D, our
customized cardiac bioassay system, to discover and develop, novel
small molecule NCEs for our CNS pipeline or for out-licensing.
To advance potential cell therapy
(CT) and regenerative medicine (RM) applications of VistaStem’s hPSC
technologies related to heart cells, in 2016, we licensed to
BlueRock Therapeutics LP, a next generation CT/RM company formed
jointly by Bayer AG and Versant Ventures, rights to develop and
commercialize certain proprietary technologies relating to the
production of cardiac stem cells for the treatment of heart
disease. As a result of its acquisition of BlueRock Therapeutics in
2019, Bayer AG now holds rights to develop and commercialize
VistaStem’s hPSC technologies relating to the production of
heart cells for the treatment of heart disease
(the Bayer
Agreement), which is
described more completely in Note 11, Sublicensing and Collaboration
Agreements.
Our
product candidates are protected through a combination of patents,
trade secrets, and proprietary know‑how. If approved, they
may also be eligible for periods of regulatory exclusivity. Our
intellectual property portfolio includes issued U.S. and foreign
patents, as well as U.S. and foreign patent
applications.
Subsidiaries
As noted above, VistaStem, a California corporation, is our
wholly-owned subsidiary. Our Condensed Consolidated Financial
Statements in this Quarterly Report on Form 10-Q
(Report) also include the accounts of VistaStem and
VistaStem’s two wholly-owned inactive subsidiaries, Artemis
Neuroscience, Inc., a Maryland corporation, and VistaStem Canada,
Inc., a corporation organized under the laws of Ontario,
Canada.
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, 2020 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, 2020 are not necessarily
indicative of the operating results to be expected for our fiscal
year ending March 31, 2021, 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, 2020 contained in our Annual Report on Form
10-K, as filed with the Securities and Exchange Commission
(SEC) on June 29, 2020.
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 $205.0 million
accumulated from inception (May 1998) through June 30, 2020. We
expect losses and negative cash flows from operations to continue
for the foreseeable future as we engage in further development of
PH94B, PH10 and AV-101, execute our drug rescue programs and pursue
potential drug development and regenerative medicine
opportunities.
Since our inception in May 1998 through June 30, 2020, 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 $86.1 million, as well as from an
aggregate of approximately $17.7 million of government research
grant awards (excluding the fair market value of government
sponsored and funded clinical trials), strategic collaboration
payments, 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.
Recent
Developments
At
June 30, 2020, we had cash and cash equivalents of approximately
$1.5 million. As more completely described in Note 8,
Capital
Stock, on March 24, 2020, we
entered into a purchase agreement and a registration rights
agreement with Lincoln Park Capital Fund (Lincoln
Park) pursuant to which Lincoln
Park committed to purchase up to $10,250,000 of our common stock at
market-based prices over a period of 24 months (the
LPC
Agreement). To satisfy our
obligations under the registration rights agreement, we filed a
Registration Statement on Form S-1 (the LPC Registration
Statement) with the Securities
and Exchange Commission (the SEC) on March 31, 2020, which the SEC declared
effective on April 14, 2020 (Registration No. 333-237514).
Subsequent to the effectiveness of the LPC Registration Statement,
through June 30, 2020, we sold 6,201,995 registered shares of our
common stock to Lincoln Park and received gross cash proceeds of
$2,840,200. Refer to Note 12, Subsequent
Events, for dislosure of
additional sales of our common stock under the LPC Agreement
subsequent to June 30, 2020.
As more completely described in Note 11, Sublicensing and
Collaboration Agreements, and in Note 12, Subsequent
Events, in June
2020, we entered into a strategic licensing and collaboration
agreement for the clinical development and commercialization of
PH94B for acute treatment of anxiety in adults with SAD and other
potential anxiety-related disorders, with EverInsight Therapeutics
Inc., a biopharmaceutical company focused on developing and
commercializing transformative pharmaceutical products for patients
in Greater China and other parts of Asia (the EverInsight
Agreement). Under
the terms of the EverInsight Agreement, EverInsight agreed to make
a non-dilutive upfront license payment of $5.0 million to us. Upon
successful development and commercialization of PH94B, we are also
eligible to receive up to $172 million in additional development
and commercial milestone payments, in addition to royalties on
commercial sales. In August 2020, we received the $5.0 million
non-dilutive upfront license payment from EverInsight, which
resulted in net cash proceeds to us of approximately $4.655 million
after the sublicense payment we agreed to make to Pherin
Pharmaceuticals, Inc. (Pherin)
pursuant to our PH94B license from Pherin, and payment for
consulting services related to the EverInsight
Agreement.
As described more completely in Note 12, Subsequent
Events, on August 2, 2020, we
entered into an underwriting agreement (the Underwriting
Agreement) pursuant to which we
sold to the Underwriter, in an underwritten public offering
(the Public
Offering), an aggregate of
15,625,000 shares (the Shares) of our common stock for a public offering price
of $0.80 per Share, resulting in gross proceeds to us of
$12,500,000. The Public Offering closed on August 5, 2020. Under
the terms of the Underwriting Agreement, we granted to the
Underwriter a 45-day over-allotment option (the
Over-Allotment
Option) to purchase up to an
additional 2,343,750 Shares (the Option
Shares) at a public offering
price of $0.80 per share. On August 5, 2020, the Underwriter
exercised the Over-Allotment Option with respect to an aggregate of
2,243,250 Option Shares (the Exercised Option
Shares). We completed the sale
of the Exercised Option Shares on August 7, 2020, which resulted in
additional gross proceeds to us of $1,794,600. Net proceeds to us
from the sale of the Shares and the Exercised Option Shares, after
deducting underwriting discounts and commissions and offering
expenses payable by us, were approximately $12.9
million.
Going
Concern
Although the transactions described above have generated
approximately $20.0 million in net cash procceds for us between
April 1, 2020 and the date of this Report, we believe it is
possible that our cash position at June 30, 2020, together with
such net proceeds will not be sufficient to fund our planned
operations for the twelve months following the issuance of these
financial statements, which raises substantial doubt that we can
continue as a going concern. During the next twelve months, subject
to securing appropriate and adequate additional financing, we plan
to prepare for and launch (i) a pivotal Phase 3 clinical trial of PH94B for acute
treatment of anxiety in adult patients with SAD, (ii) a small
exploratory open-label Phase 2A study of PH94B for acute
treatment of adult patients with AjDA, and (iii) several nonclinical studies involving
PH94B, PH10 and AV-101. When necessary and advantageous, we plan to
raise additional capital, through the sale of our equity securities
in one or more (i) private placements to accredited investors, (ii)
public offerings and/or (iii) in strategic licensing and
development collaborations involving one or more of our drug
candidates in markets outside the United States, similar to the
Everinsight Agreement. Subject to certain restrictions, our
Registration Statement on Form S-3 (Registration No. 333-234025)
(the S-3
Registration Statement), which
became effective on October 7, 2019, 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 Registration Statement, we do not have an
obligation to do so.
As we have been in the past, we expect that, when and as necessary,
we will be successful in raising additional capital from the sale
of our equity securities either in one or more public offerings or
in one or more private placement transactions with individual
accredited investors and institutions. In addition to the potential
sale of our equity securities, we may also seek to enter research,
development and/or commercialization collaborations similar to the
EverInsight Agreement and the Bayer Agreement that could generate
revenue or provide funding, including non-dilutive funding, for
development of one or more of our CNS product candidate programs.
We may also seek additional government grant awards or agreements
similar to our prior agreement with the U.S. National Institutes of
Health (NIH), Baylor University and the U.S. Department of
Veterans Affairs in connection with certain government-sponsored
studies of AV-101. Such strategic collaborations may provide
non-dilutive resources to advance our strategic initiatives while
reducing a portion of our future cash outlays and working capital
requirements. We may also pursue intellectual property arrangements
similar to the EverInsight Agreement and the Bayer Agreement with
other parties. Although we may seek additional collaborations that
could generate revenue and/or provide non-dilutive funding for
development of our product candidates, as well as new government
grant awards and/or agreements, 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 current COVID-19 pndemic, 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
and various applications of our stem cell technology platform, the
availability of, and our ability to obtain, government grant awards
and agreements, and our ability to enter into collaborations on
terms acceptable to us. To further advance the clinical development
of PH94B, PH10, and AV-101 and, to a lesser extent, our stem cell
technology platform, as well as support our operating activities,
we plan to continue to carefully manage our routine operating
costs, including our employee headcount and related expenses, as
well as costs relating to regulatory consulting, contract
manufacturing, research and development, investor and public
relations, business development, legal, intellectual property
acquisition and protection, public company compliance and other
professional services and operating costs.
Notwithstanding the foregoing, there can be no assurance that our
current strategic collaborations under the EverInsight Agreement
and the Bayer Agreement, will generate revenue from future
potential milestone payments, or that future financings or
government 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 substantial
additional financing on a timely basis when needed in 2021 or
thereafter, 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. As noted above, these
Condensed Consolidated Financial Statements 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.
Revenue Recognition
We
generate revenue from collaborative research and development
arrangements, licensing and technology transfer agreements,
including strategic licenses or sublicenses, and government grants.
We expect that our primary source of revenue beginning in the
second fiscal quarter of our current fiscal year will be from the
EverInsight 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, which is described
in more detail in Note 11, Sublicensing and Collaboration
Agreements. The terms of the EverInsight Agreement include a
$5.0 million non-refundable upfront license fee, potential payments
based upon achievement of certain development and commercial
milestones, and royalties on product sales. We also have the Bayer
Agreement, pursuant to which we
recorded sublicense revenue in the third quarter of our fiscal year
ended March 31, 2017, also described in Note 11, Sublicensing and Collaborative
Agreements, as a
potential revenue generating arrangement.
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.
Performance Obligations
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 components are separable from the other aspects of the
contractual relationship. 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.
Collaboration
arrangements can have several promised goods or services including
a license for our intellectual property, product supply and
development and regulatory services. When the customer could not
obtain the intended benefit of the contract from a promised good or
service without one or more other promises in the contract, the
promise is determined to be not distinct in the context of the
contract and is combined with other promises until the combined
promises are distinct to identify performance obligations. We have
determined that the Everinsight Agreement includes a single
combined performance obligation that includes both the license to
intellectual property and development and regulatory
services.
Arrangements
can include promises for optional additional items, which are considered marketing offers and are
accounted for as separate contracts when the customer elects such
options. Arrangements that include a promise for future
supply of product for either clinical development or commercial
supply and optional research and
development services at the customer’s or the
Company’s discretion are generally considered as options. We
assess whether these options provide a material right to the
customer and if so, such material rights are accounted for as
separate performance obligations. When the customer exercises an
option, any additional payments related to the option are recorded
in revenue when the customer obtains control of the goods or
services.
Transaction Price
Arrangements
may have both fixed and variable consideration. For collaboration
agreements, the non-refundable upfront fees and product supply
selling prices are considered fixed, while milestone payments are
considered variable consideration when determining the transaction
price. At the inception of each arrangement, we evaluate whether
the development milestones are considered probable of being
achieved and estimate an 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 value of the
associated milestone is included in the transaction price.
Milestone payments that are not within our control or the
licensee’s control, such as approvals from regulators, are
generally not considered probable of being achieved until such
approvals are received.
For
sales-based royalties, including commercial milestone payments
based on the level of sales, for which the license is deemed to be
the predominant item to which the royalties relate, we recognize
revenue at the later of when (a) the related sales occur, or (b)
the performance obligation to which some or all of the royalty has
been allocated has been satisfied (or partially
satisfied).
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.
Allocation of Consideration
As part
of the accounting for collaboration arrangements, we must develop
assumptions that require judgment to determine the stand-alone
selling price of each performance obligation identified in the
contract. The transaction price is allocated to the identified
performance obligations in proportion to their stand-alone 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. 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. 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. Since the EverInsight Agreement includes a
single combined performance obligation that is not distinct, there
is no allocation of consideration.
Timing of Recognition
Significant
management judgment is required to determine the level of effort
required under collaboration arrangements and the period over which
we expect to complete our performance obligations under the
arrangement. The performance period or measure of progress is
estimated at the inception of the arrangement and re-evaluated in
each reporting period. This re-evaluation may shorten or lengthen
the period over which revenue is recognized. Changes to these
estimates are recorded on a cumulative catch up basis. Revenue is recognized for products at a point in
time and for licenses of functional intellectual property at the
point in time the customer can use and benefit from the license.
For performance obligations that are services, revenue is
recognized over time using an output or input method. For
performance obligations that are a combination of licenses to
intellectual property and interdependent services, the nature of
the combined performance obligation is considered when determining
the method and measure of progress that best represents the
satisfaction of the performance obligation. For the single combined
performance obligation of the EverInsight 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.
We have
recorded no receivables, contract assets, or contract liabilities
as of June 30, 2020 related to the EverInsight Agreement, as there
are no rights and obligations as of that date. In subsequent
periods, the difference between revenue recognized to-date and the
consideration invoiced to-date will be recognized as either a
contract asset/unbilled revenue (revenue earned exceeds invoices)
or a contract liability/deferred revenue (invoices exceed revenue
earned).
Contract Costs
Subsequent
to June 30, 2020, we expect to make cash payments aggregating
$345,000 for sublicense fees which we are obligated to make
pursuant to our PH94B license from Pherin, and fees for consulting
services exclusively related to the EverInsight Agreement.
Additionally, on June 24, 2020, we issued 233,645 unregistered
shares of our common stock, valued at $125,000, as partial
compensation for consulting services exclusively related to the
EverInsight Agreement. These sublicense fees and consulting
payments were incurred solely as a result of obtaining the
EverInsight Agreement, and will, accordingly, be capitalized as
contract acquisition costs. Capitalized contract acquisition costs
are amortized over the period in which we expect to satisfy the
performance obligations under the arrangement and will be included
in general and administrative expenses. At June 30, 2020, the
$125,000 fair value of the common stock issued has been recorded as
a prepaid asset. In subsequent periods, the aggregate costs of
$470,000 incurred to obtain the EverInsight Agreement will be
capitalized as contract acquisition costs and amortized as
indicated. In the quarter ended June 30, 2020, no amounts were
amortized to expense, as services have not yet commenced under the
arrangement.
Research and Development Expenses
Research and development expenses are composed of both internal and
external costs. Internal costs include salaries and
employment-related expenses, including stock-based compensation
expense, of scientific personnel and direct project
costs. External research and development expenses
consist primarily of costs associated with clinical and
non-clinical development of PH94B, PH10, AV-101, and stem cell
research and development costs, and costs related to the
application and prosecution of patents related to those product
candidates and, to a lesser extent, our stem cell technology
platform. 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 contract research and development organizations,
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 and non-employee consultants based on the grant date fair
value of the award. We record non-cash, 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 not granted restricted stock awards to
employees 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 for the three months ended June
30, 2020.
|
Three Months Ended June 30,
|
|
|
|
|
|
|
Research
and development expense
|
$226,600
|
$390,600
|
General
and administrative expense
|
448,000
|
672,400
|
Total
stock-based compensation expense
|
$674,600
|
$1,063,000
|
Expense amounts reported above include $2,500 and $1,500 in
research and development expense and general and administrative
expense, respectively, attributable to our 2019 Employee Stock
Purchase Plan for the quarter ended June 30, 2020.
During the quarter ended June 30, 2020, we granted from our 2019
Omnibus Equity Incentive Plan (the 2019 Plan) options to purchase an aggregate of 1,945,000
shares of our common stock at exercise prices at or above the
closing market price of our common stock on the date of grant to
the independent members of our Board, our officers and employees
and certain consultants. The options vested 25% upon grant with the
remaining shares vesting ratably over two years for independent
directors, officers and employees, and over one or two years for
consultants. We valued the options granted during the quarter ended
June 30, 2020 using the Black-Scholes Option Pricing Model and the
following assumptions:
Assumption:
|
|
|
Market
price per share at grant date
|
$0.41
|
$0.40 to 0.54
|
Exercise
price per share
|
$0.41
|
$0.40 to 0.55
|
Risk-free
interest rate
|
0.39%
|
|
Expected
term in years
|
5.36
|
|
Volatility
|
84.10%
|
|
Dividend
rate
|
0.0%
|
0.0%
|
Shares
|
1,945,000
|
|
|
|
|
Fair Value per share
|
$0.28
|
|
At June 30, 2020, there were stock options outstanding under our
2016 Equity Incentive Plan (the 2016 Plan) and our 2019 Plan to purchase 11,948,088 shares
of our common stock at a weighted average exercise price of $1.21
per share. At that date, there were also 4,785,162 shares of our
common stock available for future issuance under the 2019 Plan.
There are no additional shares available for issuance under our
2016 Plan.
Leases, Right-of-Use Assets and Lease Liabilities
On
April 1, 2019, we adopted Financial
Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-02, Leases, which replaced the existing guidance in
Accounting Standards Codification (ASC) 840, “Leases”, and its subsequent
amendments including ASU No. 2018-11, Leases (Topic 842):
Targeted Improvements
(ASC
842) using the modified
transition method.
We
determine whether an arrangement is an operating or financing lease
at contract inception. Operating lease assets represent our right
to use an underlying asset for the lease term and operating lease
liabilities represent our obligation to make lease payments arising
from the lease. Operating lease assets and 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 that we will
exercise that option. In determining the present value of the lease
payments, we use the interest rate implicit in the lease when it is
readily determinable and we use our estimated incremental borrowing
rate based upon information available at the commencement date when
the implicit rate is not readily determinable.
The
lease payments used to determine our operating lease assets include
lease incentives and stated rent increases and may include
escalation or other clauses linked to rates of inflation or other
factors when determinable and are recognized in our operating lease
assets in our condensed consolidated balance sheets.
Our
operating leases are reflected in right of use asset –
operating leases, other current liabilities and non-current
operating lease liability 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.
Our
accounting for financing leases, previously referred to as
“capital leases” under earlier guidance, remained
substantially unchanged with our adoption of ASC 842. Financing
leases are included in property and equipment, net and as current
and non-current financing lease liabilities in our condensed
consolidated balance sheets. Refer to Note 10, Commitments and Contingencies, for
additional information regarding ASC 842 and its impact on our
condensed consolidated financial statements.
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),
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 all 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:
|
|
|
|
|
|
|
|
|
Series A Preferred stock issued and
outstanding (1)
|
750,000
|
750,000
|
Series B Preferred stock issued and
outstanding (2)
|
1,160,240
|
1,160,240
|
Series C Preferred stock issued and
outstanding (3)
|
2,318,012
|
2,318,012
|
Outstanding
options under the Company's Amended and Restated 2016 (formerly
2008) Stock Incentive Plan and 2019 Omnibus Equity Incentive
Plan
|
11,948,088
|
10,003,088
|
Outstanding
warrants to purchase common stock
|
26,589,834
|
26,555,281
|
Total
|
42,766,174
|
40,786,621
|
____________
|
|
|
(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 unegistered common stock
issuable in payment of dividends on Series B Preferred upon
conversion
(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. We carried no assets or
liabilities that are measured on a recurring basis at fair value at
June 30, 2020 or March 31, 2020.
Recent Accounting Pronouncements
Other
than as described in our Form 10-K for our fiscal year ended March
31, 2020, we do not expect that accounting standards that have been
issued or proposed by the Financial Accounting Standards Board
(FASB) or other
standards-setting bodies that do not require adoption until a
future date will have a material impact on our consolidated
financial statements upon adoption.
Note 4. Prepaid Expenses and Other Current
Assets
Prepaid expenses and other current assets are composed of the
following at June 30, 2020 and March 31, 2020:
|
|
|
|
|
|
|
|
|
Clinical
and nonclinical materials and contract services
|
$115,200
|
$115,200
|
Fair
value of securities issued for professional services
|
125,000
|
-
|
Insurance
|
391,200
|
107,200
|
All
other
|
1,600
|
2,700
|
|
$633,000
|
$225,100
|
Note 5. Property and Equipment
Property and equipment is composed of the following at June 30,
2020 and March 31, 2020:
|
|
|
|
|
|
|
|
|
Laboratory
equipment
|
$892,500
|
$892,500
|
Tenant
improvements
|
214,400
|
214,400
|
Computers
and network equipment
|
54,600
|
54,600
|
Office
furniture and equipment
|
84,600
|
84,600
|
|
1,246,100
|
1,246,100
|
Accumulated
depreciation and amortization
|
(1,061,900)
|
(1,036,500)
|
Property
and equipment, net
|
$184,200
|
$209,600
|
Included in amounts reported above for office furniture and
equipment is the right-of-use asset related to a financing lease of
certain office equipment. Amounts associated with assets subject to
the financing lease at June 30, 2020 and March 31, 2020 are as
follows:
|
|
|
|
|
|
|
|
|
Office
equipment subject to financing lease
|
$14,700
|
$14,700
|
Accumulated
depreciation
|
(10,100)
|
(9,400)
|
Net
book value of ofice equipment subject to
|
|
|
financing
lease
|
$4,600
|
$5,300
|
Note 6. Accrued Expenses
Accrued expenses are composed of the following at June 30, 2020 and
March 31, 2020:
|
|
|
|
|
|
Accrued
expenses for clinical and nonclinical
|
|
|
materials,
development and contract services
|
$397,100
|
$462,300
|
Accrued
professional services
|
194,600
|
76,500
|
All
other
|
16,100
|
22,700
|
|
$607,800
|
$561,500
|
Note 7. Notes Payable
The following table summarizes our unsecured promissory notes at
June 30, 2020 and March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.30%
and 6.30% Notes payable
|
|
|
|
|
|
|
to
insurance premium financing company (current)
|
$328,800
|
$-
|
$328,800
|
$56,500
|
$-
|
$56,500
|
|
|
|
|
|
|
|
1% Note
payable under Paycheck Protection Program
|
224,400
|
400
|
224,800
|
-
|
-
|
-
|
less:
current portion
|
(99,700)
|
(400)
|
(100,100)
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Non-current
portion
|
$124,700
|
$-
|
$124,700
|
$-
|
$-
|
$-
|
|
|
|
|
|
|
|
Total
current notes payable
|
$428,500
|
$400
|
$428,900
|
$56,500
|
$-
|
$56,500
|
In May 2020, we executed a 6.30% promissory note in the principal
amount of $322,200 in connection with certain insurance policy
premiums. The note is payable in monthly installments of $33,200,
including principal and interest, through March 2021, and had an
outstanding principal balance of $290,800 at June 30, 2020. In
February 2020, we executed a 7.30% promissory note in the principal
amount of $62,600 in connection with other insurance policy
premiums. That note is payable in monthly installments of $6,500
including principal and interest, through December 2020 and had an
outstanding principal balance of $38,000 at June 30,
2020.
In April 2020, we entered into a note payable agreement (the
PPP Loan
Agreement) with Silicon Valley
Bank as lender (the Lender), pursuant to which we received net proceeds of
$224,400 from a potentially forgivable loan from the U.S. Small
Business Administration (SBA) pursuant to the Paycheck Protection Program
(PPP) enacted by Congress under the Coronavirus
Aid, Relief, and Economic Security Act (the CARES Act) administered by the SBA (the PPP Loan). The PPP Loan matures on April 22, 2022. Under
the CARES Act and the PPP Loan Agreement, all payments of both
principal and interest are deferred until at least October 22,
2020, after which time we will be required to make monthly
principal payments of approximately $12,500 until maturity, unless
the loan is forgiven prior to maturity. The PPP Loan will accrue
interest at a rate of 1.00% per annum, and interest will continue
to accrue throughout the period the PPP Loan is outstanding, or
until it is forgiven. The CARES Act (including subsequent guidance
issued by SBA and U.S. Department of the Treasury related thereto)
provides that all or a portion of the PPP Loan may be forgiven upon
our request to the Lender, subject to requirements in the PPP Loan
Agreement and the CARES Act. While we currently believe that the
use of the PPP Loan proceeds will meet the conditions for
forgiveness under the PPP, there can be no assurance that we will
obtain full or partial forgiveness of the loan.
Note 8. Capital Stock
Common Stock Purchase Agreement with Lincoln Park Capital
Fund
On March 24, 2020, we entered into a purchase agreement and a
registration rights agreement with Lincoln Park Capital Fund
(LPC) pursuant to which LPC committed to purchase up
to $10,250,000 of our common stock at market-based prices over a
period of 24 months (the LPC
Agreement). On March 24, 2020,
we sold 500,000 unregistered shares of our common stock (the
Initial Purchase
Shares) to LPC under the
purchase agreement at a price of $0.50 per share for gross cash
proceeds of $250,000 (the Initial
Purchase) and we also issued
750,000 unregistered shares of our common stock to LPC under the
terms of the LPC Agreement for its purchase commitments under the
LPC Agreement (the Commitment
Shares). To satisfy our
obligations under the registration rights agreement associated with
the LPC Agreement, we filed a Registration Statement on Form S-1
(the LPC
Registration Statement) with
the SEC on March 31, 2020 (Registration No. 333-237514), which the
SEC declared effective on April 14, 2020 (the Commencement
Date). The LPC Registration
Statement included registration of the Initial Purchase Shares and
the Commitment Shares. The fair value of the Commitment Shares,
$284,400, determined based on the quoted closing market price of
our common stock on March 24, 2020, is a component of deferred
offering costs attributable to this offering, which costs are
amortized ratably to additional paid-in capital as we sell shares
of our common stock to LPC under the LPC Agreement. Subsequent to
the Commencement Date and through June 30, 2020, we sold an
additional 6,201,995 registered shares of our common stock to LPC
and received aggregate gross cash proceeds of $2,840,200. At June
30, 2020, there were approximately 2.1 million registered shares of
our common stock remaining available for sale under the LPC
Agreement.
On any
business day during the term of the LPC Agreement, we have the
right, in our sole discretion, to direct LPC to purchase up to
100,000 shares on such business day (the “Regular Purchase”) (subject to
adjustment under certain circumstances as provided in the LPC
Agreement). The purchase price per share for each such Regular
Purchase will be based on prevailing market prices of our common
stock immediately preceding the time of sale as computed under the
LPC Agreement. In each case, LPC’s maximum commitment in any
single Regular Purchase may not exceed $1,000,000. In addition to
Regular Purchases, provided that we present LPC with a purchase
notice for the full amount allowed for a Regular Purchase, we may
also direct LPC to make accelerated purchases and additional
accelerated purchases as described in the LPC Agreement. Although
LPC has no right to require us to sell any shares of our common
stock to LPC, LPC is obligated to make purchases as we direct,
subject to certain conditions. In all instances, we may not sell
shares of our common stock to LPC under the LPC Agreement if such
sales would result in LPC beneficially owning more than 9.99% of
our common stock. There are no upper limits on the price per share
that LPC must pay for shares of our common stock. See Note
12, Subsequent Events, for
disclosure regarding sales of our common stock under the LPC
Agreement after June 30, 2020.
Sale of Common Stock and Warrants in the Spring 2020 Private
Placement
In April 2020, in a self-directed private placement, we sold to an
accredited investor units to purchase an aggregate of 125,000
unregistered shares of our common stock and four-year warrants to
purchase 125,000 shares of our common stock at an exercise price of
$0.50 per share and we received cash proceeds of $50,000
(the Spring
2020 Private Placement).
Registration Statement for shares underlying warrants issued in
Private Placements
On May 1, 2020, we filed a registration statement on Form S-3
(Registration No. 333-237968) to register approximately 12.1
million shares of common stock underlying outstanding warrants that
we had issued in earlier private placement offerings, including the
Spring 2020 Private Placement, as well as common stock underlying
warrants that had been previously issued to various consultants as
full or partial compensation for their services. Included in the
registration statement were shares of our common stock underlying
approximately 5.8 million outstanding warrants to purchase shares
of our common stock that had been modified in December 2019 to
temporarily reduce, for a period of two years or, if sooner, until
the expiration of the warrant, the exercise price of such warrants
to $0.50 per share, in order to more closely align the exercise
price of the warrants with the trading price of our common stock at
that time (the Winter 2019 Warrant
Modification). We also
registered approximately 0.8 million shares of unregistered
outstanding common stock held by former holders of warrants who had
exercised such warrants subsequent to the Winter 2019 Warrant
Modification. Further, we registered the 125,000 shares of common
stock issued in the Spring 2020 Private Placement. The SEC declared
the registration statement effective on May 13, 2020 (the
Warrant
Registration Statement). As a
result of the effectiveness of this registration statement, the
shares of common stock underlying essentially all of our
outstanding warrants have been registered.
Warrants Outstanding
The following table summarizes warrants outstanding and exercisable
as of June 30, 2020 subsequent to the issuance in the Spring 2020
Private Placement described above. The weighted average exercise
price of outstanding and exercisable warrants at June 30, 2020 is
$1.64 per share and $1.80 per share, respectively.
|
|
|
|
|
|
|
|
|
Expiration
|
|
|
|
Date
|
|
|
|
|
|
|
$0.50
|
3/25/2021
to 4/30/2024
|
8,151,312
|
8,026,312
|
$0.73
|
7/25/2025
|
3,870,077
|
-
|
$0.805
|
12/31/2022
|
80,431
|
80,431
|
$1.50
|
12/13/2022
|
9,596,200
|
9,596,200
|
$1.82
|
3/7/2023
|
1,388,931
|
1,388,931
|
$3.51
|
12/31/2021
|
50,000
|
50,000
|
$5.30
|
5/16/2021
|
2,705,883
|
2,705,883
|
$7.00
|
9/2/2020
to 3/3/2023
|
747,000
|
747,000
|
|
|
|
|
26,589,834
|
22,594,757
|
At June 30, 2020, with the effectiveness of the Warrant
Registration Statement in May 2020, the shares of common stock
underlying essentially all of the outstanding warrants except those
having an exercise price of $7.00 per share have been registered
for resale by the warrant holders. The warrants exercisable at
$0.73 per share become exercisable on July 25, 2020.
Additionally, no outstanding
warrant is subject to any down round anti-dilution protection
features and all of the outstanding warrants are exercisable by the
holders only by payment in cash of the stated exercise price per
share.
Note 9. Related Party Transactions
Contract Research and Development Agreement with Cato Research
Ltd.
Cato
Holding Company (CHC),
doing business as Cato BioVentures (CBV), was the parent of Cato Research
Ltd. (CRL), now known as
Cato Research LLC. CRL is a contract research, development and
regulatory services organization (CRO) that we have in the past, and
continue to engage for a wide range of material aspects related to
the nonclinical and clinical development, manufacturing and
regulatory affairs associated with our efforts to develop and
commercialize PH94B, PH10, AV-101. In October 2018, CHC completed
the sale of CRL to an independent third party. As a result of this
transaction, CHC and/or CBV is no longer affiliated with or has any
control over CRL. Prior to the sale of CRL, CBV held shares of our
common stock and at June 30 2020, CBV held approximately 1.7% of
our outstanding common stock.
In July
2017, we entered into a Master Services Agreement (MSA) with CRL, which replaced a
substantially similar May 2007 master services agreement, pursuant
to which CRL may assist us in the evaluation, development,
commercialization and marketing of our potential product
candidates, and provide regulatory and strategic consulting
services as requested from time to time. Specific projects or
services are and will be delineated in individual work orders
negotiated from time-to-time under the MSA. Under the terms of work orders issued pursuant to
the July 2017 MSA, we incurred expenses of $124,800 and $1,405,100
during the quarters ended June 30, 2020 and 2019, respectively. At
June 30, 2020 and March 31, 2020, we had recorded accounts payable
and accrued expenses related to CRL aggregating $422,800 and
$578,800, respectively. We anticipate periodic expenses for CRO
services from CRL related to nonclinical and clinical development
of, and regulatory affairs related to PH94B, PH10, AV-101 and other
potential product candidates will remain significant in future
periods.
License and Option Agreements with Pherin Pharmaceuticals,
Inc.
During our fiscal year ended March 31, 2019, we issued an
aggregate of 2,556,361 shares of our unregistered common stock
having an issue-date fair market value of $4,250,000 to Pherin to
acquire exclusive worldwide licenses to develop and commercialize
PH94B and PH10. We recorded the acquisition of the licenses as
research and development expense during our fiscal year ended March
31, 2019. During the quarters ended June 30, 2020 and 2019, we
recorded $10,000 and $30,000, respectively, as research and
development expense for monthly support payments to Pherin under
the terms of the PH94B and PH10 license agreements. Our liability
for such monthly support payments terminated in April 2020 under
the terms of the PH10 license agreement. We recorded no amounts
payable to Pherin at June 30, 2020 or March 31, 2020. At June
30,2020, Pherin held approximately 2.4% of our outstanding common
stock.
Consulting Agreement
During
the quarters ended June 30, 2020 and 2019, we engaged a consulting
firm headed by one of the independent members of our Board to
provide various market research studies, competitive analyses, and
commercial advisory projects for certain of our CNS pipeline
candidates pursuant to which we recorded research and development
expense of $15,000 and $27,700 for the quarters ended June 30, 2020
and 2019, respectively. We recorded accounts payable and accrued
expenses of $15,000 at June 30, 2020 and no amounts payable at
March 31, 2020 related to these projects and services.
Note 10. Commitments and Contingencies
Operating Leases
We lease our headquarters office and laboratory space in South San
Francisco, California under the terms of a lease that expires on
July 31, 2022 and that provides an option to renew for an
additional five years at then-current market rates. Consistent with
the guidance in Accounting Standards Codification Topic 842, Leases
(ASC
842), beginning April 1, 2019,
we recorded this lease in our Condensed Consolidated Balance Sheet
as an operating lease. For the purpose of determining the
right-of-use asset and associated lease liability, we determined
that the renewal of this lease is reasonably probable. 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 at June 30, 2020
and March 31, 2020:
|
|
|
Assets
|
|
|
Right
of use asset – operating lease
|
$3,492,100
|
$3,579,600
|
|
|
|
Liabilities
|
|
|
Current
operating lease obligation
|
$325,700
|
$313,400
|
Non-current
operating lease obligation
|
3,631,100
|
3,715,600
|
Total
operating lease liability
|
$3,956,800
|
$4,029,000
|
The following table summarizes the effect of operating lease costs
in the Company’s condensed consolidated statements of
operations for the three months ended June 30, 2020 and
2019:
|
For the Three Months Ended
|
For the Three Months Ended
|
|
|
|
Operating
lease cost
|
$212,800
|
$208,800
|
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,
|
|
2021
(remaining nine months)
|
$488,000
|
2022
|
668,400
|
2023
|
726,000
|
2024
|
766,000
|
2025
|
789,000
|
Thereafter
|
1,931,400
|
Total
lease expense
|
5,368,800
|
Less
imputed interest
|
(1,412,000)
|
Present
value of operating lease liabilities
|
$3,956,800
|
The remaining lease term, including the assumed five-year extension
at the expiration of the current lease period, and the discount
rate assumption for our South San Francisco operating lease is as
follows:
|
|
Assumed
remaining lease term in years
|
7.08
|
Assumed
discount rate
|
8.54%
|
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
|
|
|
|
Cash
paid for amounts included in the measurement of lease
liabilities
|
$197,500
|
$188,200
|
During the three months ended June 30, 2020, we recorded no new
right of use assets arising from new 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 $3,500 and
$3,400 for the three months ended June 30, 2020 and 2019,
respectively, attributable to this lease.
Note 11. Sublicensing and Collaborative Agreements
PH94B Sublicense Agreement with EverInsight
On June 24, 2020, we entered into a license and collaboration
agreement (the EverInsight
Agreement)
with EverInsight Therapeutics Inc., a company
incorporated under the laws of the British Virgin Islands
(EverInsight), pursuant to
which we granted EverInsight an exclusive license
to develop and commercialize PH94B, our neurosteroid drug candidate
for multiple anxiety-related disorders, in Greater China (which
includes Mainland China, Hong Kong, Macau and Taiwan), 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 rest of the
world.
Under
the terms of the EverInsight Agreement, EverInsight is be
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 EverInsight to coordinate and review the development
and commercialization plans with respect to PH94B in the
Territory.
We are
responsible to pursue 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. EverInsight has the option to
participate in the global Phase 3 clinical trials of PH94B and will
assume all direct costs and expenses of conducting such clinical
trial in the Territory and a portion of the indirect costs of the
global trial. 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 EverInsight a
Right of Reference to all of our regulatory documentation and our
development data.
Under the terms of the EverInsight Agreement, EverInsight
agreed to pay us a non-refundable upfront license payment of $5.0
million within 30 business days of the effective date of the
agreement. Refer to Note 12,
Subsequent
Events, for disclosure
regarding receipt of this payment in August 2020. Additionally,
upon successful development and commercializatipn of PH94B in the
Territory, we are eligible to receive milestone payments of
up to $172.0 million. Further, we are eligible to receive royalty
payments on a country-by-country basis on net sales for the later
of ten years or the expiration of market or regulatory exclusivity
in the jurisdiction, except that payments will be reduced on a
country-by-country basis in the event that there is no market
exclusivity in the period. Royalty payments may also be reduced if
there is generic competitive product in the period.
We have
determined that we have one combined performance obligation for the
license to develop and commercialize PH94B in the Territory and
related development and regulatory services. In addition,
EverInsight has an option that will create manufacturing
obligations for us during development upon exercise by EverInsight.
These 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 are 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. As of June
30, 2020, no revenue related to this agreement has been recognized.
As of June 30, 2020, the aggregate amount of the transaction price
allocated to the remaining performance obligation is $5.0 million
and will be recognized as revenue as the services are completed,
which is expected to occur over approximately the next four years
beginning in the quarter ending September 30, 2020.
Unless earlier terminated due to certain material breaches of the
contract, or otherwise, the License 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.
BlueRock Therapeutics Sublicense Agreement
In
December 2016, we entered into an Exclusive License and Sublicense
Agreement with BlueRock Therapeutics, LP, a next generation
regenerative medicine company established in December 2016 by Bayer
AG and Versant Ventures (BlueRock
Therapeutics), pursuant to which BlueRock Therapeutics
received exclusive rights to utilize certain technologies
exclusively licensed by us from University Health Network
(UHN) for the production of
cardiac stem cells for the treatment of heart disease. As a result
of its acquisition of BlueRock Therapeutics in 2019, Bayer AG now
holds the rights to develop and commercialize our hPSC technologies
relating to the production of heart cells for the treatment of
heart disease (the Bayer
Agreement). We retained rights to cardiac stem cell
technology licensed from UHN related to small molecule, protein and
antibody drug discovery, drug rescue and drug development,
including small molecules with cardiac regenerative potential, as
well as small molecule, protein and antibody testing involving
cardiac cells. To date, we have recognized $1.25 million in
sublicense revenue, in our fiscal year ended March 31, 2017, under
the Bayer Agreement.
Note 12. Subsequent Events
We have
evaluated subsequent events through the date of this Report and
have identified the following matters requiring
disclosure:
Registered Public Offering of Common Stock
On August 2, 2020, we entered into an underwriting agreement
(the Underwriting
Agreement) with Maxim Group,
LLC as representative of the underwriters named therein (the
Underwriter), pursuant to which we sold to the Underwriter,
in an underwritten public offering (the Public
Offering), an aggregate of
15,625,000 shares (the Shares) of our common stock for a public offering price
of $0.80 per Share, resulting in gross proceeds to us of
$12,500,000. The Public Offering closed on August 5, 2020 at which
time we sold the Shares to the Underwriter. Under the terms of the
Underwriting Agreement, we granted to the Underwriter a
45-day over-allotment option (the Over-Allotment
Option) to purchase up to an
additional 2,343,750 Shares (the Option
Shares) at a public offering
price of $0.80 per share. On August 5, 2020, the Underwriter
elected to exercise the Over-Allotment Option with respect to an
aggregate of 2,243,250 Option Shares (the Exercised Option
Shares). We completed the sale
of the Exercised Option Shares on August 7, 2020 and received
additional gross proceeds of $1,794,600. After deducting
underwriting discounts and commissions and offering expenses
payable by us, we received net proceeds of approximately $12.9
million from the sale of the Shares and the Exercised Option
Shares.
Receipt of $5,000,000 Upfront License Payment from
EverInsight
On August 3, 2020, we received the $5,000,000 non-dilutive upfront
license fee payment from EverInsight, which resulted in net cash proceeds
to us of approximately $4.655 million after the sublicense payment
we agreed to make to Pherin pursuant to our PH94B license from
Pherin, and payment for consulting services related to the
EverInsight Agreement.
Exercise of Warrants
During July 2020, holders of warrants to purchase an aggregate of
228,000 shares of our common stock exercised such warrants, and we
received aggregate cash proceeds of $114,000. We issued 228,000
registered shares of our common stock upon these exercises pursuant
to the effectiveness of the Warrant Registration
Statement.
Sales of Common Stock under the LPC Agreement
During July 2020, we sold an additional 100,000 registered shares
of our common stock to LPC under the terms of the LPC Agreement and
received cash proceeds of $51,000.
Item 2.
|
|
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 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
VistaGen Therapeutics, Inc., a Nevada corporation (which may be
referred to as VistaGen, the Company, we, our, or us), is a biopharmaceutical company committed to
developing differentiated new generation medications for anxiety,
depression and other central nervous system (CNS) disorders. Our pipeline includes three
clinical-stage CNS drug candidates, each with a differentiated
mechanism of action, an exceptional safety profile in all clinical
studies to date, and therapeutic potential in multiple CNS markets.
We aim to become a fully-integrated biopharmaceutical company that
develops and commercializes innovative CNS therapies for large and
growing mental health and neurology markets where we believe
current treatments are inadequate to meet the needs of millions of
patients and their caregivers worldwide.
PH94B Neuroactive Nasal Spray for Anxiety-related
Disorders
PH94B neuroactive nasal spray is a rapid-onset synthetic
neurosteroid with therapeutic potential in a wide range of
neuropsychiatric indications involving anxiety or phobia.
Conveniently self-administered in microgram-level doses without
systemic exposure, we are initially developing PH94B as a potential
fast-acting, non-sedating, non-addictive new generation acute
treatment of anxiety in adults with social anxiety disorder
(SAD). SAD affects over 20 million Americans and,
according to the National Institutes of Health (NIH), is the third most common psychiatric condition
after depression and substance abuse. A person with SAD feels
symptoms of anxiety or fear in certain social situations, such as
meeting new people, dating, being on a job interview, answering a
question in class, or having to talk to a cashier in a store. Doing
everyday things in front of people - such as eating or drinking in
front of others or using a public restroom - also causes anxiety or
fear. A person with SAD may also feel symptoms of fear and anxiety
in performance situations, such as giving a lecture, a speech or a
presentation to classmates at school or colleagues at work, as well
as playing in a sports game, or dancing or playing a musical
instrument on stage. A person with SAD is afraid that he or
she will be humiliated, judged, and rejected. The fear and
anxiety that people with SAD have in social and performance
situations is so strong that they feel they are beyond their
ability to control. As a result, SAD gets in the way of going to
work, attending school, or doing everyday things in situations with
potential for interpersonal interaction. People with SAD may worry
about these and other things for weeks before they happen.
Sometimes, they end up staying away from places or events where
they think they might have to do something that will embarrass or
humiliate them. Without treatment, SAD can last for many
years or a lifetime and prevent a person from reaching his or her
full potential.
Only three drugs, all oral antidepressants (ADs), are approved by the U.S Food and Drug
Administration (FDA) specifically for treatment of SAD. These
FDA-approved ADs have slow onset of therapeutic effect (often
taking many weeks to months), require chronic administration and
often cause significant side effects beginning soon after
administration. Slow onset of effect, chronic administration and
significant side effects may make the FDA-approved ADs inadequate
or inappropriate treatment alternatives for many individuals
affected by SAD episodically. Our PH94B is fundamentally different
from all current anti-anxiety drugs, including all ADs approved by
the FDA for treatment of SAD.
Intranasal self-administration of a microgram level dose (3.2 mcg)
of PH94B engages specific nasal chemosensory neurons
(NCNs). NCNs activate olfactory bulb neurons
(OBNs) on the base of the brain. OBNs send neural
connections to neurons in the central limbic amygdala, the brain
center where fear and anxiety are regulated. Neurons in the limbic
amygdala modulate inhibitory/excitatory neurotransmitters,
resulting in rapid-onset anti-anxiety effects, without requiring
systemic uptake and distribution to produce such rapid-onset
effects. In all clinical studies to date, PH94B has not shown
psychological side effects (such as dissociation or
hallucinations), detectable systemic exposure, sedation or other
side effects and safety concerns that may be caused by the current
ADs approved by the FDA for treatment of SAD, as well as by
benzodiazepines and beta blockers, which are not approved by the
FDA to treat SAD but which are be prescribed by psychiatrists and
physicians for treatment of SAD on an off-label
basis.
In a
peer-reviewed, published double-blind, placebo-controlled Phase 2
clinical trial, PH94B neuroactive nasal spray was highly
significantly more effective than placebo in reducing both
public-speaking (performance) anxiety (p=0.002) and social
interaction anxiety (p=0.009) in laboratory-simulated challenges of
SAD patients within 15 minutes of self-administration of a
non-systemic 1.6 microgram dose of PH94B. Based on its novel
mechanism of pharmacological action, rapid-onset of therapeutic
effects and exceptional safety and tolerability profile in clinical
trials to date, we are preparing for Phase 3 clinical development
of PH94B for acute treatment of anxiety in adults with SAD. Our
goal is to develop and commercialize PH94B as the first
FDA-approved, rapid-onset, acute treatment of anxiety in adults
with SAD, for acute use on demand much like a rescue inhaler is
used on demand before an asthma attack or a migraine drug is used
before a migraine episode. We believe additional potential
anxiety-related neuropsychiatric indications for PH94B include
general anxiety disorder, postpartum anxiety, perioperative and
pre-testing (e.g., pre-MRI) anxiety, panic disorder, post-traumatic
stress disorder and specific social phobias. The FDA has granted Fast
Track designation for development of PH94B for acute treatment of
anxiety in adults with SAD, which we believe is the FDA’s
first such designation for a drug candidate for
SAD.
In
addition to development of PH94B as a potential treatment for SAD,
we are currently planning for exploratory open-label Phase 2A
clinical development of PH94B for acute treatment of adjustment
disorder with anxiety (AjDA), an emotional or behavioral
reaction considered excessive or out of proportion to a stressful
event or major life change, occurring within three months of the
stressor, and/or significantly impairing a person’s social,
occupational and/or other important areas of functioning. Given the
diverse impact of the COVID-19 pandemic, including, among other
things, fear and axiety about health and safety, economic loss,
unemployment, social isolation, disruption of established education
and work practices, we submitted our preliminary protocol for the
study to the FDA through the FDA’s Coronavirus Treatment
Acceleration Program (CTAP). As a result of that submission,
we are currently in discussions wih the FDA’s Division of
Psychiatric Products to determine the appropriate next steps for
the study, including the study protocol. We are planning to conduct
the proposed Phase 2A study in New York City and enroll
approximately 25 to 30 subjects suffering from AjDA-provoking
stressors, including, but not limited to, stressors related to the
diverse impact of the COVID-19 pandemic and recent social unrest in
the U.S.
PH10 Neuroactive Nasal Spray for Depression and Suicidal
Ideation
PH10 neuroactive nasal spray is an odorless, fast-acting synthetic
neurosteroid drug candidate with therapeutic potential in a wide
range of neuropsychiatric indications involving depression and
suicidal ideation. Conveniently self-administered in
microgram-level doses without systemic exposure, we are initially
developing PH94B as a potential rapid-onset, treatment of major
depressive disorder (MDD).
Depression is a serious medical illness and a global public health
concern that can occur at any time over a person's life. While most
people will experience depressed mood at some point during their
lifetime, MDD is different. MDD is the chronic, pervasive feeling
of utter unhappiness and suffering, which impairs daily
functioning. Symptoms of MDD include diminished pleasure or loss of
interest in activities, changes in appetite that result in weight
changes, insomnia or oversleeping, psychomotor agitation, loss of
energy or increased fatigue, feelings of worthlessness or
inappropriate guilt, difficulty thinking, concentrating or making
decisions, and thoughts of death or suicide and attempts at
suicide. Current FDA-approved medications available in the
multi-billion-dollar global AD market often fall far short of
satisfying the unmet medical needs of millions suffering from the
debilitating effects of depression.
While current FDA-approved ADs are widely used, about two-thirds of
patients with MDD do not respond to their initial AD treatment.
Inadequate response to current ADs is among the key reasons MDD is
one of the leading public health concerns in the United States,
creating a significant unmet medical need for new agents with
fundamentally different mechanisms of action and side effect and
safety profiles.
PH10 is a new generation antidepressant with a mechanism of action
that is fundamentally different from all current ADs. After
self-administration, a non-systemic microgram-level dose of PH10
binds to nasal chemosensory receptors that, in turn, activate key
neural circuits in the brain that can lead to rapid-onset
antidepressant effects, but without the psychological side effects
(such as dissociation and hallucinations) or safety concerns that
maybe be caused by ketamine-based therapy (KBT), including intravenous ketamine or
esketamine nasal spray, or the significant side effects of current
ADs. In an exploratory 30-patient Phase 2A clinical trial, PH10,
self-administered at a dose of 6.4 micrograms, was well-tolerated
and demonstrated significant (p=0.022) rapid-onset antidepressant
effects, which were sustained over an 8-week period, as measured by
the Hamilton Depression Rating Scale (HAM-D), without side effects or safety
concerns that may be caused by KBT. Based on positive results from
this exploratory Phase 2A study, we are preparing for Phase 2B
clinical development of PH10 in MDD, which preparation includes two
additional preclinical toxicology studies required by the FDA to
support our new Investigational New Drug (IND) application for proposed Phase 2B clinical
development of PH10 in the U.S. With its exceptional safety profile
during clinical development to date, we believe PH10, has potential
for multiple applications in global depression markets, including
first as a stand-alone therapy for MDD, and eventually also an
add-on therapy to augment current FDA-approved ADs for patients
with MDD who have an inadequate response to standard ADs, and to
prevent relapse following successful treatment with
KBT.
AV-101, an Oral NMDA Receptor Antagonist
AV-101 (4-Cl-KYN) targets the NMDAR (N-methyl-D-aspartate
receptor), an ionotropic glutamate receptor in the brain. Abnormal
NMDAR function is associated with numerous CNS diseases and
disorders. AV-101 is an oral prodrug of 7-chloro-kynurenic acid
(7-Cl-KYNA), which is a potent and selective full 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. In all studies to date,
AV-101 has exhibited no dissociative or hallucinogenic
psychological side effects or safety concerns similar to those that
may be caused by amantadine and KBT. With its exceptionally few
side effects and excellent safety profile in all studies to date,
AV-101 has potential to be a new, differentiated oral treatment for
multiple large-market CNS indications where we believe current
treatments are inadequate to meet high unmet patient needs. The FDA
has granted Fast Track designation for development of AV-101 as
both a potential adjunctive treatment for MDD and as a non-opioid
treatment for neuropathic pain.
In late-2019, we completed a Phase 2 clinical trial of AV-101 as a
potential adjunctive treatment, together with a standard
FDA-approved oral AD (either a selective serotonin reuptake
inhibitor (SSRI) or a
serotonin norepinephrine reuptake inhibitor (SNRI)), in
MDD patients who had an inadequate response to a stable dose
of a standard AD (the Elevate
Study). Topline results of the
Elevate Study (n=199) indicated that the AV-101 treatment arm (1440
mg) did not differentiate from placebo on the primary endpoint
(change in the Montgomery-Åsberg Depression Rating Scale
(MADRS-10) total score
compared to baseline), potentially due to sub-therapeutic levels of
7-Cl-KYNA in the brain. As in prior clinical studies, AV-101 was
well tolerated, with no psychotomimetic side effects or
drug-related serious adverse events.
Recent discoveries from successful AV-101 preclinical studies
suggest that there is a substantially increased brain concentration
of AV-101 and its active metabolite, 7-Cl-KYNA, when AV-101 is
given together with probenecid, a safe and well-known oral anion
transport inhibitor approved by the FDA for treatment of gout.
These surprising effects were first revealed as to AV-101 and
7-Cl-KYNA in our recent preclinical studies, although the effects
are consistent with well-documented clinical studies of probenecid
increasing the therapeutic benefits of several classes of
FDA-approved drugs that are unrelated to AV-101 and 7-Cl-KYNA,
including certain antibacterial, anticancer and antiviral
drugs. When probenecid was
administered adjunctively with AV-101 in an animal model,
substantially increased brain concentrations of both AV-101 and of
7-Cl-KYNA were discovered. We
also recently identified that some of the same kidney transporters
that reduce drug concentrations in the blood, by excretion in the
urine, are also found in the blood brain barrier and function to
reduce 7-Cl-KYNA levels in the brain by pumping it out of the brain
and back into the blood. In the recent preclinical studies with
AV-101 and probenecid, we discovered that blocking those
transporters in the blood brain barrier with probenecid resulted,
as noted above, in a substantially increased brain concentration of
7-Cl-KYNA. This 7-Cl-KYNA efflux-blocking effect of probenecid,
with the resulting increased brain levels and duration of
7-Cl-KYNA, suggests the potential impact of AV-101 with probenecid
could result in far more profound therapeutic benefits for patients
with MDD and other NMDAR-focused CNS disorders than demonstrated in
the Elevate Study. Some of the
new discoveries from our recent AV-101 preclinical studies with
adjunctive probenecid were presented by a collaborator of VistaGen
at the British Pharmacological Society’s Pharmacology 2019
annual conference in Edinburgh, UK in December
2019.
In addition, a Phase 1B target engagement study completed after the
Elevate Study by the Baylor College of Medicine
(Baylor)
with financial support from the U.S. Department of Veterans Affairs
(VA), involved 10 healthy volunteer U.S. military
Veterans who received single doses of AV-101 (720 mg or 1440 mg) or
placebo, in a double-blind, randomized, cross-over controlled
trial. The primary goal of the study was to identify and define a
dose-response relationship between AV-101 and multiple
electrophysiological (EEG) biomarkers related to NMDAR function, as well as
blood biomarkers associated with suicidality (the
Baylor
Study). The findings from the
Baylor Study suggest that, in healthy Veterans, the higher dose of
AV-101 (1440 mg) was associated with dose-related increase in the
40 Hz Auditory Steady State Response (ASSR), a robust measure of the integrity of inhibitory
interneuron synchronization that is associated with NMDAR
inhibition. Findings from the Baylor Study were presented at the
58th Annual Meeting of the American College of
Neuropsychopharmacology (ACNP) in Orlando, Florida in December
2019.
The successful Baylor Study and the recent discoveries in our
preclinical studies involving AV-101 and adjunctive probenecid
suggest that it may be possible to increase therapeutic
concentrations and duration of 7-Cl-KYNA in the brain, and thus
increase NMDAR antagonism in MDD patients with an inadequate
response to standard ADs when AV-101 and probenecid are combined.
During 2020, we plan to complete preclinical assessment of of
AV-101 with adjunctive probenecid and evaluate its potential for
future clinical development and commercialization for treatment of
CNS indications involving abnormal function of the
NMDAR.
VistaStem Therapeutics – Stem Cell Technology for Drug Rescue
and Regenerative Medicine
In addition to our current CNS drug candidates, we have stem cell
technology-based, pipeline-enabling capabilities through our
wholly-owned subsidiary, VistaStem Therapeutics
(VistaStem).
VistaStem is focused on applying human pluripotent stem cell
(hPSC) technologies, including our customized cardiac
bioassay system, CardioSafe 3D, to discover and develop small molecule New
Chemical Entities (NCEs) for our CNS pipeline or out-licensing. In
addition, VistaStem’s stem cell technologies involving
hPSC-derived blood, cartilage, heart and liver cells have multiple
potential applications in the cell therapy (CT) and regenerative medicine (RM) fields.
To advance potential CT and RM applications of VistaStem’s
hPSC technologies related to heart cells, in 2016, we licensed to
BlueRock Therapeutics LP, a next generation CT/RM company formed
jointly by Bayer AG and Versant Ventures, rights to develop and
commercialize certain proprietary technologies relating to the
production of cardiac stem cells for the treatment of heart
disease. As a result of its acquisition of BlueRock Therapeutics in
2019, Bayer AG now holds rights to develop and commercialize
VistaStem’s hPSC technologies relating to the production of
heart cells for the treatment of heart disease
(the Bayer
Agreement). In a manner
similar to the Bayer Agreement, we may pursue additional
collaborations involving rights to develop and commercialize
VistaStem’s hPSC technologies for production of blood,
cartilage, and/or liver cells for CT and RM applications,
including, among other indications, treatment of arthritis, cancer
and liver disease.
Subsidiaries
As noted above, VistaStem, a California corporation, is our
wholly-owned subsidiary. Our Condensed Consolidated Financial
Statements in this Report also include the accounts of VistaStem
and VistaStem’s two wholly-owned inactive subsidiaries,
Artemis Neuroscience, Inc., a Maryland corporation, and VistaStem
Canada, Inc., a corporation organized under the laws of Ontario,
Canada.
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, 2020, as filed with
the SEC on June 29, 2020, 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. Since inception, we have devoted substantial time
and effort to developing AV-101 for multiple CNS indications,
including manufacturing research, process development and
production of AV-101 drug substance and finished drug product,
preclinical efficacy and safety studies, and clinical efficacy and
safety studies in CNS indications. In addition, since acquiring our
exclusive worldwide licenses to PH 94B and PH10 in 2018, we have
devoted substantial resources focused on development and
commercialization of PH94B and PH10, for which we are actively
pursuing initiatives to advance manufacturing research, process
development and production programs for drug substance and finished
drug product, additional preclinical safety studies, and clinical
efficacy and safety studies in multiple neuropsychiatry
indications. Also, from-time-to-time, we have devoted resources to
VistaStem’s stem cell technology research and development,
bioassay development and small molecule drug rescue initiatives, as
well as creating, protecting and patenting intellectual property
(IP) related to our product candidates and stem cell
technologies, with the corollary initiatives of recruiting and
retaining personnel and raising working capital. As of June
30, 2020, we had an accumulated deficit of approximately $205.0
million. Our net loss for the three months ended June 30, 2020 and
2019 was approximately $3.1 million and $6.2 million, respectively.
We expect losses to continue for the foreseeable future, primarily
as we engage in further development of
PH94B, PH10 and AV-101, and pursue potential drug rescue, drug
development and CT and RM opportunities.
Summary of the Three Months Ended June 30, 2020
During the three months ended June 30, 2020, we continued to
advance our manufacturing, preclinical and clinical development,
and regulatory initiatives necessary to develop and commercialize
our Phase 3 clinical development of PH94B for acute treatment of
anxiety in adults with SAD and acute treatment of, PH10 for MDD and
AV-101 for NMDAR-focused indications. In addition, we continued to
expand the regulatory and intellectual property foundation to
support broad clinical development and, ultimately,
commercialization of our product candidates in the U.S. and foreign
markets, and on a limited basis, advance drug rescue applications
of our stem cell technology to further expand our CNS
pipeline.
Throughout
the quarter ended June 30, 2020 and through the date of this
Report, a new strain of coronavirus
(COVID-19) has spread to many countries in the world and
the outbreak has been declared a pandemic by the World Health
Organization. The U.S. Secretary of Health and Human Services has
also declared a public health emergency in the U.S. in response to
the outbreak. Our operations and those of our contract
research organizations (CROs) and contract development and
manufacturing organizations (CDMOs) have been impacted by
shelter-in-place orders, social
distancing measures, travel bans and restrictions, and certain
business and government closures or reductions in service. Our
headquarters operations have been significantly curtailed as our
employees have been working remotely throughout this period.
Since the beginning of the COVID-19 pandemic, we have experienced
delays in the delivery of supplies of active pharmaceutical product
(API) required to continue
development of PH94B and PH10. Future unexpected delays may result
in a significant, material delay or disruption to our current
clinical development plans, programs, and our
operations.
During the quarter ended June 30, 2020, we completed
a successful and positive meeting with
the FDA regarding Phase 3 clinical development of PH94B for the
acute treatment of anxiety in adult patients with SAD, reaching
consensus with the FDA on key aspects of a unique initial pivotal
Phase 3 clinical trial of PH94B involving a single-event,
laboratory-simulated public speaking challenge in adult patients
with SAD. We agreed with the FDA that our initial pivotal Phase 3
study of PH94B will be a randomized, double-blind,
placebo-controlled, parallel comparison study conducted at
approximately 12 to 15 sites in North America. Dr. Michael
Liebowitz, Professor of Clinical Psychiatry at Columbia University,
director of the Medical Research Network in New York City, and
creator of the Liebowitz Social Anxiety Scale (LSAS), is expected
to be the Principal Investigator of the study. Target enrollment
for the study (completed patients) is approximately 182 adult
patients with SAD. As in the highly statistically significant
(p=0.002) Phase 2 study of PH94B in SAD, our initial pivotal Phase
3 study will involve a single laboratory-simulated,
anxiety-provoking public speaking challenge. Also, as in the Phase
2 study, the Subjective Units of Distress Scale
(SUDS)
will be used to assess the primary efficacy endpoint of our Phase 3
study.
In June 2020, we entered into a strategic licensing and
collaboration agreement for the clinical development and
commercialization of PH94B with EverInsight Therapeutics Inc., a
biopharmaceutical company focused on developing and commercializing
transformative pharmaceutical products for patients in Greater
China and other parts of Asia (the EverInsight
Agreement). Under
the terms of the EverInsight Agreement, EverInsight will be
responsible for clinical development, regulatory submissions and
commercialization of PH94B for treatment of SAD, and potentially
other anxiety-related indications, in key markets in Asia,
including markets in Greater China, South Korea and Southeast Asia
(collectively, the Territory).
Under the terms of the EverInsight greement, in August 2020, we
received a non-dilutive upfront license fee payment of $5.0 million
from EverInsight. Upon successful development and commercialization
of PH94B in the Territory, we are eligible to receive up to $172
million in additional development and commercial milestone
payments. After payment of sublicense fees to Pherin pursuant to
our PH94B license from Pherin, and payment of consulting fees
related to consummation of the EverInsight Agreement, we received
net cash proceeds of approximately $4.655
million.
To satisfy our obligations under the common stock purchase and
registration rights agreements that we entered with Lincoln Park
Capital Fund (LPC) in March 2020, we filed a Registration Statement
on Form S-1 (the LPC Registration
Statement) with the SEC on
March 31, 2020 (Registration No. 333-237514), which the SEC
declared effective on April 14, 2020 (the Commencement
Date). Subsequent to the
Commencement Date and through June 30, 2020, we sold an additional
6,201,995 registered shares of our common stock to LPC and received
aggregate cash proceeds to us of $2,840,200. Since June 30, 2020
and through the date of this Report, we have sold an additional
100,000 shares of our common stock to LPC and received $51,000 in
cash proceeds.
Subsequent to the end of the quarter, on August 2, 2020, we entered
into an underwriting agreement (the Underwriting
Agreement) with Maxim Group,
LLC as representative of the underwriters named therein (the
Underwriter), pursuant to which we sold to the Underwriter,
in an underwritten public offering (the Public
Offering), an aggregate of
15,625,000 shares (the Shares) of our common stock for a public offering price
of $0.80 per Share, resulting in gross proceeds to us of
$12,500,000. The Public Offering closed on August 5, 2020, at which
time we sold the Shares to the Underwriter. Under the terms of the
Underwriting Agreement, we granted to the Underwriter a
45-day over-allotment option (the Over-Allotment
Option) to purchase up to an
additional 2,343,750 Shares (the Option
Shares) at a public offering
price of $0.80 per share. On August 5, 2020, the Underwriter
exercised the Over-Allotment Option with respect to an aggregate of
2,243,250 Option Shares. The sale of the exercised Option Shares
was completed on August 7, 2020 and resulted in additional gross
proceeds to us of $1,794,600. Net proceeds to us from the sale of
the Shares and the exercised Option Shares, after deducting
underwriting discounts and commissions and offering expenses
payable by us, is approximately $12.9 million.
As a
matter of course, we continue to minimize, to the greatest extent
possible, cash commitments and expenditures for both internal and
external research and development and general and administrative
services. To further advance the
nonclinical and clinical development of PH94B, PH10, AV-101 and our
stem cell technology platform, as well as support our operating
activities, we continue to carefully manage our routine operating
costs, including our internal employee related expenses, as well as
external costs relating to regulatory consulting, contract research
and development, investor relations and corporate development,
legal, acquisition and protection of intellectual property, public
company compliance and other professional services and internal
costs.
Results of Operations
Comparison of Three Months Ended June 30, 2020 and
2019
The following table summarizes the results of our operations for
the three months ended June 30, 2020 and 2019 (amounts in
thousands).
|
Three Months Ended June 30,
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
Research
and development
|
$1,731
|
$4,314
|
General
and administrative
|
1,391
|
1,910
|
Total
operating expenses
|
3,122
|
6,224
|
|
|
|
Loss
from operations
|
(3,122)
|
(6,224)
|
|
|
|
Interest
income (expense), net
|
(3)
|
16
|
Other
income
|
1
|
-
|
|
|
|
Loss
before income taxes
|
(3,124)
|
(6,208)
|
Income
taxes
|
(3)
|
(2)
|
|
|
|
Net
loss
|
(3,127)
|
(6,210)
|
Accrued
dividends on Series B Preferred Stock
|
(336)
|
(302)
|
Net
loss attributable to common stockholders
|
$(3,463)
|
$(6,512)
|
Revenue
We reported no revenue for either quarter ended June 30, 2020 or
2019. As described more completely in Note 11, Sublicensing and Collaboration
Agreements, to our Condensed
Consolidated Financial Statements in Part I of this Report, on June
24, 2020 we entered into the EverInsight Agreement, pursuant to
which we received an non-dilutive upfront license fee payment of
$5.0 million on August 3, 2020. We expect to recognize revenue
pursuant to this payment in future periods beginning with the
quarter ending September 30, 2020. While we may potentially receive
additional cash payments and royalties in the future under the
EverInsight Agreement or the 2016 Bayer Agreement (also described
in Note 11, Sublicensing and Collaborative
Agreements, to our Condensed
Consolidated Financial Statements in Part I of this Report) in the
event certain performance-based milestones and commercial sales are
achieved, there can be no assurance that the EverInsight Agreement
or the Bayer Agreement will provide additional revenue beyond that
noted or cash payments to us in the near term, or at
all.
Research and Development Expense
Research and development expense decreased from $4.3 million to
$1.7 million for the quarters ended June 30, 2020 and 2019,
respectively, primarily due to the completion of the Elevate Study
in the fourth calendar quarter of 2019. Expenses related to the
Elevate Study and other AV-101 related nonclinical activities
decreased by $2.5 million in the quarter ended June 30, 2020
compared to expense in the quarter ended June 30, 2019. Noncash
research and development expenses, primarily stock-based
compensation and depreciation in both periods, accounted for
approximately $249,000 and $416,000 in the quarters ended June 30,
2020 and 2019, 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,
|
|
|
|
|
|
|
Salaries
and benefits
|
$348
|
$340
|
Stock-based
compensation
|
227
|
391
|
Consulting
and other professional services
|
93
|
136
|
Technology
licenses and royalties
|
108
|
167
|
Project-related
research, licenses and supplies:
|
|
|
Elevate
study and other AV-101 expenses
|
165
|
2,666
|
PH94B
and PH10 project expenses
|
635
|
424
|
Stem
cell and all other
|
5
|
42
|
|
805
|
3,132
|
Rent
|
138
|
136
|
Depreciation
|
12
|
12
|
|
|
|
Total
Research and Development Expense
|
$1,731
|
$4,314
|
Salaries and benefits expense is essentially unchanged between
periods, reflecting no changes in compensation levels for our Chief
Medical Officer (CMO), Chief Scientific Officer (CSO), or members of our scientific staff between the
periods. The change reflects the return from leave of absence of
one member of our scientific staff during the quarter ended June
30, 2019 and modest increases in the cost of Company-provided
benefits beginning in mid-2019.
Stock-based compensation expense reflects the amortization of
option grants made to our CMO, CSO, members of our scientific staff
and certain clinical and scientific consultants since June 2016,
all earlier outstanding grants having become fully vested and
amortized. Grants awarded after June 30, 2019, including those
granted during the quarter ended June 30, 2020, account for
approximately $101,000 of expense in the quarter ended June 30,
2020, offset by the expense reduction of approximately $199,000
attributable to certain options granted between June 2016 and
February 2018 that became fully vested and amortized during the
quarter ended June 30, 2020 or earlier. Stock compensation expense
is further reduced in the quarter ended June 30, 2020 by
approximately $58,000 due to the absence of the impact of immediate
vesting attributable to certain options granted in May 2019.
Expense attributable to recent option grants is generally being
amortized over two-year to three-year vesting periods, with
essentially all of the grants made since May 2019, including those
made in the quarter ended June 30, 2020, being immediately vested
and expensed upon grant, in accordance with the terms of the
respective grants.
Consulting and other professional services 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, including by
members of our Scientific Advisory Board and CNS Clinical and
Regulatory Advisory Board, especially in support of our PH94B and
PH10 development initiatives.
Technology license and royalties expense reflects both recurring
annual license fees, as well as 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. These costs
do not occur ratably throughout the year or between years. In both
periods, this expense includes legal counsel and other 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.
AV-101 project expense for the quarter ended June 30, 2019 reflects
the costs of conducting the Elevate Study in MDD, including various
CROs, investigator and clinical site costs, and CRO support
services for AV-101 projects for indications other than MDD, as
well as expense incurred to manufacture additional quantities of
AV-101 for use in potential future clinical development of AV-101
in a number of potential CNS indications. AV-101 project expense
for the quarter ended June 30, 2020 primarily reflects the cost of
certain preclinical studies related to the use of AV-101 with
adjunctive probenecid and certain AV-101 manufacturing stability
studies.
PH94B and PH10 project expenses for the quarters ended June 30,
2020 and 2019 primarily reflect manufacturing and regulatory
initiatives necessary to facilitate Phase 3 clinical development of
PH94B for acute treatment of anxiety in patients with SAD and Phase
2B development of PH10 for MDD. Manufacturing, formulation and
analysis of sufficient quantities of API and drug product are
currently the critical path items for advancing the clinical
development of both of these product candidates and production and
analytical processes for both have been delayed by issues related
to the ongoing COVID-19 pandemic.
Stem cell and other project related expenses reflects costs
associated with drug rescue applications of our stem cell
technology in both years. These expenses are typically incurred by
our in-house scientific personnel. As a result of shelter-in-place
and remote working requirements related to the ongoing COVID-19
pandemic, such expenses have been reduced to an insignificant level
in the quarter ended June 30, 2020.
Rent expense for both periods presented reflects our implementation
of ASC 842 effective April 1, 2019 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. In implementing ASC 842, we also
projected that we would exercise a five-year option to extend our
tenancy under the lease when it expires in 2022, which extension
would be subject to projected market rent conditions at that time.
We allocate total rent expense for our South San Francisco facility
between research and development expense and general and
administrative expense based generally on square footage dedicated
to each function. Refer to Note 10, Commitments and
Contingencies, in the
accompanying Condensed Consolidated Financial Statements in Part I
of this Report for additional information. Following our
implementation of ASC 842, changes in rent expense between periods
are primarily related to changes in 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 expense decreased to approximately $1.4
million from approximately $1.9 million for the quarters ended June
30, 2020 and 2019, respectively. Noncash general and administrative
expense, $466,000 in the quarter ended June 30, 2020, decreased
from $772,000 in the quarter ended June 30, 2019 primarily due to
decreases in stock-based compensation and the noncash components of
investor and public relations expense attributable to the
amortization of the fair value of common stock or warrants granted
to service providers. 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,
|
|
|
|
|
|
|
Salaries
and benefits
|
$348
|
$344
|
Stock-based
compensation
|
448
|
672
|
Board
fees
|
46
|
46
|
Legal,
accounting and other professional fees
|
195
|
279
|
Investor
and public relations
|
112
|
304
|
Insurance
|
102
|
82
|
Travel
expenses
|
4
|
30
|
Rent
and utilities
|
90
|
90
|
All
other expenses
|
46
|
63
|
|
$1,391
|
$1,910
|
Salaries and benefits expense is essentially unchanged between
periods, reflecting no changes in compensation levels for our Chief
Executive Officer (CEO), Chief Financial Officer (CFO), Vice President-Corporate Development
(VP
Corporate Development) and a
non-officer member of our administrative staff and modest increases
in the cost of Coimpany-provided benefits beginning in
mid-2019.
Stock-based compensation expense reflects the amortization of
option grants made to our CEO, CFO, VP Corporate Development,
administrative staff, independent members of our Board and certain
consultants since June 2016, all earlier grants having become fully
vested and amortized. Grants awarded after June 30, 2019, including
those granted during the quarter ended June 30, 2020, account for
approximately $229,000 of expense in the quarter ended June 30,
2020, offset by the expense reduction of approximately $333,000
attributable to certain options granted between June 2016 and
February 2018 that became fully vested and amortized during the
quarter ended June 30, 2020 or earlier. Stock compensation expense
is further reduced in the quarter ended June 30, 2020 by
approximately $98,000 due to the absence of the impact of immediate
vesting attributable to certain options granted in May 2019.
Expense attributable to recent option grants is generally being
amortized over two-year to three-year vesting periods, with
essentially all of the grants made since May 2019, including those
made in the quarter ended June 30, 2020, being immediately vested
and expensed upon grant, in accordance with the terms of the
respective grants.
Board fees represents fees paid as consideration for Board and
Board Committee services to the independent members of our
Board.
Legal, accounting and other professional fees for the quarters
ended June 30, 2020 and 2019 includes expense related to routine
legal fees as well as the accounting expense related to the annual
audit of our prior year financial statments. In 2019, we also
incurred $30,000 attributable to services provided by an
international business development consultant.
Investor and public relations expense includes the fees of our
various external service providers for a broad spectrum of investor
relations, public relations and social media services, and well as
market awareness and strategic advisory and support functions and
initiatives that, in 2019, included numerous in-person meetings in
multiple U.S. and certain foreign markets 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 the quarter ended
June 30, 2020, we curtailed the number of external service
providers engaged in these activities compared to the prior year.
Further, in the quarter ended June 30, 2019, in addition to cash
fees and expenses we incurred for such activities, we recognized
approximately $79,400 of noncash expense attributable to the
amortization of the fair value of stock and warrants granted in
previous periods to various corporate development, investor
relations, and market awareness service providers. No such noncash
expense ws incurred in the quarter ended June 30,
2020.
The
increase in insurance expense is primarily attributable to the
market-rate increase in the premium for our directors and officers
liability insurance upon renewal of our policy in May
2020.
In the quarter ended June 30, 2019, travel expense reflects costs
associated with in-person management presentations and 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 and in
monitoring the progress of our Elevate Study. As a result of
shelter-in-place and travel restrictions associated with the
ongoing COVID-19 pandemic, such meetings have occurred remotely and
there has generally been no in-person business travel by our
executives.
Rent expense for both periods presented reflects our implementation
of ASC 842 effective April 1, 2019 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. In implementing ASC 842, we also
projected that we would exercise a five-year option to extend our
tenancy under the lease when it expires in 2022, which extension
would be subject to projected market rent conditions at that time.
We allocate total rent expense for our South San Francisco facility
between research and development expense and general and
administrative expense based generally on square footage dedicated
to each function. Refer to Note 10, Commitments and
Contingencies, in the
accompanying Condensed Consolidated Financial Statements in Part I
of this Report for additional information. Following our
implementation of ASC 842, changes in rent expense between periods
are primarily related to changes in such items as common area
maintenance fees, taxes and insurance which are generally assessed
to us by our landlord.
Interest and Other Expenses
Interest expense totaled $3,200 for the quarter ended June 30, 2020
compared to interest income, net of interest expense of $16,500 for
the quarter ended June 30, 2019. 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,
|
|
|
|
|
|
|
Interest
income
|
$-
|
$19
|
Interest
expense on financing lease, insurance premium financing
notes
|
|
|
and
Payroll Protection Program loan
|
(3)
|
(3)
|
Interest
income (expense), net
|
$(3)
|
$16
|
Following
the completion of our underwritten public offering in February
2019, which generated $11.5 million in gross proceeds to us, during
the quarter ended June 30, 2019, we deposited a portion of the
proceeds in interest-bearing cash equivalent accounts and earned
interest income. As a result of the decline in market interest
rates in 2020 compared to 2019 and a reduction in the amount of
cash deposited in such accounts, we earned no interest in the
quarter ended June 30, 2020. Interest
expense in both periods relates to interest paid on insurance
premium financing notes and on our financing lease of office
equipment subject to ASC 842, and in 2020, interest accrued on our
Payroll Protection Program loan.
We
recognized $335,800 and $302,500 for
the quarters ended June 30, 2020 and 2019, respectively,
representing the 10% cumulative dividend accrued on 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 accompanying Condensed Consolidated
Statement of Operations and Comprehensive Loss included in Part I
of this Report. There have been no conversions of outstanding
shares of Series B Preferred stock into shares of our common stock
since August 2016.
Liquidity and Capital Resources
Since our inception in May 1998 through June 30, 2020, 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 $86.1 million, as well as from an
aggregate of approximately $17.7 million of government research
grant awards (excluding the fair market value of government
sponsored and funded clinical trials), strategic collaboration
payments, 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.
Recent
Developments
At June 30, 2020, we had cash and cash equivalents of approximately
$1.5 million. As more completely described in Note 8,
Capital
Stock and Note 12,
Subsequent
Events, to our Condensed
Consolidated Financial Statements in Part I of this Report, on
March 24, 2020, we entered into a purchase agreement and a
registration rights agreement with LPC pursuant to which LPC
committed to purchase up to $10,250,000 of our common stock at
market-based prices over a period of 24 months (the
LPC
Agreement). To satisfy our
obligations under the LPC Agreement, we filed the LPC Registration
Statement with the SEC on March 31, 2020, which the SEC declared
effective on April 14, 2020 (Registration No. 333-237514).
Subsequent to the effectiveness of the LPC Registration Statement
and through the date of this Report, we sold 6,301,995 registered
shares of our common stock to Lincoln Park and received gross cash
proceeds of $2,891,200.
As more completely described in Note 11, Sublicensing and
Collaboration Agreements, and in Note 12, Subsequent
Events,
to our Condensed Consolidated
Financial Statements in Part I of this Report, on June 24, 2020, we entered into a
strategic licensing and collaboration agreement for the clinical
development and commercialization of PH94B with EverInsight
Therapeutics Inc., a biopharmaceutical company focused on
developing and commercializing transformative pharmaceutical
products for patients in Greater China and other parts of Asia
(the EverInsight
Agreement). Under
the terms of the EverInsight Agreement, EverInsight agreed to make
a non-dilutive upfront license fee payment of $5.0 million to us,
and we are eligible to receive up to $172 million of additional
milestone payments upon successful achievement of specific
development and commercial milestones in the future, in addition to
royalties. We received net cash proceeds of approximately $4.655
million in August 2020, after a required sublicense payment to
Pherin Pharmaceuticals, Inc. (Pherin)
pursuant to our PH94B license from Pherin and consulting payments
related to consummation of the EverInsight
Agreement.
As described more completely in Note 12, Subsequent
Events, to our Condensed
Consolidated Financial Statements in Part I of this Report, on
August 2, 2020, we entered into an underwriting agreement
(the Underwriting
Agreement) pursuant to which we
sold to the Underwriter, in an underwritten public offering
(the Public
Offering), an aggregate of
15,625,000 shares (the Shares) of our common stock for a public offering price
of $0.80 per Share, resulting in gross proceeds to us of
$12,500,000. The Public Offering closed on August 5, 2020. Under
the terms of the Underwriting Agreement, we granted to the
Underwriter a 45-day over-allotment option (the
Over-Allotment
Option) to purchase up to an
additional 2,343,750 Shares (the Option
Shares) at a public offering
price of $0.80 per share. On August 5, 2020, the Underwriter
exercised the Over-Allotment Option with respect to an aggregate of
2,243,250 Option Shares (the Exercised Option
Shares). We completed the sale
of the Exercised Option Shares on August 7, 2020, which resulted in
additional gross proceeds to us of $1,794,600. Net proceeds to us
from the sale of the Shares and the Exercised Option Shares, after
deducting underwriting discounts and commissions and offering
expenses payable by us, is approximately $12.9
million.
Going
Concern
Although the transactions described above have generated
approximately $20.0 million in net cash procceds to us between
April 1, 2020 and the date of this Report, we believe it is
possible that our cash position at June 30, 2020, together with
such net proceeds, will not be sufficient to fund our planned
operations for the twelve months following the issuance of these
financial statements, which raises substantial doubt that we can
continue as a going concern. During the next twelve months, subject
to securing appropriate and adequate additional financing, we plan
to prepare for and launch (i) a pivotal Phase 3 clinical trial of PH94B for acute
treatment of anxiety in adult patients with SAD, (ii) a small
exploratory open-label Phase 2A study of PH94B for acute
treatment of adult patients with AjDA and (iii) several nonclinical studies involving
PH94B, PH10 and AV-101. When necessary and advantageous, we plan to
raise additional capital, through the sale of our equity securities
in one or more (i) private placements to accredited investors, (ii)
public offerings and/or (iii) in strategic licensing and
development collaborations involving one or more of our drug
candidates in markets outside the United States, similar to the
Everinsight Agreement. Subject to certain restrictions, our
Registration Statement on Form S-3 (Registration No. 333-234025)
(the S-3
Registration Statement), which
became effective on October 7, 2019, 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 Registration Statement, we do not have an
obligation to do so.
As we have been in the past, we expect that, when and as necessary,
we will be successful in raising additional capital from the sale
of our equity securities either in one or more public offerings or
in one or more private placement transactions with indiv