VISTAGEN THERAPEUTICS, INC.
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
|
☒
|
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
|
For the fiscal year ended: March 31, 2019
or
|
☐
|
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
|
Commission file number: 001-37761
VistaGen Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
|
Nevada
|
|
20-5093315
|
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
343 Allerton Avenue
South San Francisco, California 94080
(650) 577-3600
(Address, including zip code, and telephone number, including area
code, of registrant’s principal executive
office)
Securities registered pursuant to Section 12(b) of the
Act
|
Title
of each class
|
|
Name
of each exchange on which registered
|
|
Common
Stock, par value $0.001 per share
|
|
The
Nasdaq Capital Market
|
Securities registered pursuant to Section 12(g) of the
Act
None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities
Act. Yes
☐
No
☒
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes
☐
No
☒
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 if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
☒
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the
Exchange Act.
|
Large accelerated filer
☐
|
|
Accelerated filer
☐
|
|
Non-accelerated filer
☐
|
Smaller reporting company
☒
|
Emerging Growth Company
☐
|
||||
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the
Act). Yes
☐
No
☒
The aggregate market value of the common stock of the registrant
held by non-affiliates of the registrant on September 30, 2018, the
last business day of the registrant’s second fiscal quarter,
was: $41,111,438.
As of
June
24, 2019, there were
42,622,965
shares
of the registrant’s common stock, $0.001 par
value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12, 13 and 14 of Part III incorporate by
reference certain information from VistaGen Therapeutics,
Inc.’s definitive proxy statement, to be filed with the
Securities and Exchange Commission on or before July 29,
2019.
T
ABLE OF
CON
TENTS
|
|
Item No.
|
|
Page No.
|
|
|
|||
|
1
|
|||
|
|
30
|
||
|
|
66
|
||
|
|
66
|
||
|
|
66
|
||
|
|
66
|
||
|
PART II
|
|
|
|
|
|
67
|
||
|
|
67
|
||
|
|
68
|
||
|
|
79
|
||
|
|
80
|
||
|
|
114
|
||
|
|
114
|
||
|
|
114
|
||
|
PART III
|
|
|
|
|
|
115
|
||
|
|
115
|
||
|
|
115
|
||
|
|
115
|
||
|
|
115
|
||
|
PART IV
|
|
|
|
|
|
116
|
||
|
117
|
|||
|
120
|
|||
Forward-Looking Statements
This Annual Report on Form 10-K (
Annual
Report
) contains
forward-looking statements that involve substantial risks and
uncertainties. All statements contained in this Annual Report other
than statements of historical facts, including statements regarding
our strategy, future operations, future financial position, future
revenue, projected costs, prospects, plans, objectives of
management and expected market growth, are forward-looking
statements. These statements involve known and unknown risks,
uncertainties and other important factors that may cause our actual
results, performance or achievements to be materially different
from any future results, performance or achievements expressed or
implied by the forward-looking statements.
The words “anticipate,” “believe,”
“estimate,” “expect,” “intend,”
“may,” “plan,” “predict,”
“project,” “target,”
“potential,” “will,” “would,”
“could,” “should,” “continue,”
and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain
these identifying words. These forward-looking statements include,
among other things, statements about:
●
the
availability of capital to satisfy our working capital requirements
and clinical and non-clinical development objectives;
●
the
accuracy of our estimates regarding expenses, future revenues and
capital requirements;
●
our plans to develop and commercialize our product
candidates, including, among other things, AV-101, initially as an
add-on treatment for Major Depressive Disorder (
MDD
), and subsequently as a treatment for additional
diseases and disorders involving the Central Nervous System
(
CNS
), PH94B as a treatment for Social Anxiety
Disorder (
SAD
) and PH10 as a treatment for
MDD;
●
our
ability to initiate and complete necessary preclinical and clinical
trials, to advance our product candidates into additional
preclinical and clinical trials, including pivotal clinical trials,
to successfully complete any such preclinical and clinical trials,
and for those trials to generate positive results;
●
economic,
regulatory and political developments in the U.S. and foreign
countries;
●
the performance of the Department of Veterans
Affairs (
VA
), Baylor University, our third-party contract
manufacturer(s) (
CMOs
), contract research organizations
(
CROs
) and other third-party preclinical and clinical
drug development collaborators and regulatory service
providers;
●
our ability to obtain and maintain intellectual
property (
IP
) protection for our core assets, including our
product candidates;
●
the
size of the potential markets for our product candidates and our
ability to enter and serve those markets;
●
the
rate and degree of market acceptance of our product candidates for
any indication once approved;
●
the
success of competing products and product candidates in development
by others that are or become available for the indications that we
are pursuing in the markets we seek to enter on our own or with
collaborators;
●
the
loss of key scientific, clinical or nonclinical development,
regulatory, and/or management personnel, internally or from one or
more of our third-party collaborators; and
●
other risks and uncertainties, including those
listed under Part I, Item 1A of this Annual Report titled
“
Risk
Factors
.”
These forward-looking statements are only predictions and we may
not actually achieve the plans, intentions or expectations
disclosed in our forward-looking statements, so you should not
place undue reliance on our forward-looking statements. Actual
results or events could differ materially from the plans,
intentions and expectations disclosed in the forward-looking
statements we make. 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 business,
financial condition and operating results. We have included
important factors in the cautionary statements included in this
Annual Report, particularly in Part I, Item 1A, titled
“
Risk
Factors,
” that could
cause actual future results or events to differ materially from the
forward-looking statements that we make. Our forward-looking
statements do not reflect the potential impact of any future
acquisitions, mergers, dispositions, joint ventures or investments
we may make.
You should read this Annual Report and the documents that we have
filed as exhibits to the Annual Report with the understanding that
our actual future results may be materially different from what we
expect. We do not assume any obligation to update any
forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by applicable
law.
PA
R
T I
All brand names or trademarks appearing in this Annual Report are
the property of their respective holders. Unless the context
requires otherwise, references in this report to
“VistaGen,” the “Company,”
“we,” “us,” and “our” refer to
VistaGen Therapeutics, Inc., a Nevada corporation. All references
to future quarters and years in this Annual Report refer to
calendar quarters and calendar years, unless reference is made
otherwise.
|
Item 1.
|
Business
|
Overview
We are a clinical-stage biopharmaceutical company committed to
developing and commercializing new generation medicines to treat
diseases and disorders of the central nervous system
(
CNS
) with high unmet need. Our portfolio of three
clinical-stage product candidates is currently focused on major
depressive disorder (
MDD
), neuropathic pain (
NP
), levodopa-induced dyskinesia
(
LID
),
social anxiety disorder (
SAD
) and suicidal ideation (
SI
).
Our most advanced product candidate, PH94B neuroactive nasal spray,
is fundamentally different from all current treatments for SAD.
Developed from proprietary compounds called pherines and
administered as a nasal spray, PH94B activates nasal chemosensory
receptors that trigger neural circuits in the brain that suppress
fear and anxiety. In a published, peer-reviewed, double-blind,
placebo-controlled Phase 2 clinical trial undertaken in a
laboratory setting mimicking public speaking and social interaction
challenges, PH94B neuroactive nasal spray was significantly more
effective than placebo in reducing behavior related to social
anxiety in individuals with SAD.
Its
novel mechanism of pharmacological action, rapid-onset of
therapeutic effects and exceptional safety and tolerability profile
in clinical trials to date make PH94B neuroactive nasal spray an
excellent product candidate with potential to become the first
FDA-approved on-demand treatment for SAD. Additional potential
indications for PH94B include post-traumatic stress disorder
(
PTSD
) and general anxiety disorder
(
GAD
),
as well as other neuropsychiatric indications.
AV-101 (4-Cl-KYN), one of our two product candidates initially
focused on MDD, belongs to a new generation of investigational
medicines in neuropsychiatry and neurology known as NMDA
(N-methyl-D-aspartate) glutamate receptor modulators. The NMDA
receptor is a pivotal receptor in the brain and abnormal NMDA
function is associated with multiple CNS diseases and disorders,
including MDD, epilepsy, LID, NP and many others. AV-101 is an oral
prodrug of
7-chlorokynurenic acid (7-Cl-KYNA),
which binds uniquely at the glycine site of the
NMDA receptor and has potential to be a new at-home treatment for
MDD and other CNS indications with high unmet need. AV-101 is
currently in Phase 2 development in the U.S. for MDD. ELEVATE is
our Phase 2 multicenter, double blind, placebo-controlled clinical
study to evaluate the efficacy and safety of AV-101 as an add-on
treatment for MDD in adult patients with an inadequate therapeutic
response to current FDA-approved oral antidepressants
(
ADs
) (the
ELEVATE
Study
). Dr. Maurizio Fava,
Professor of Psychiatry at Harvard Medical School and Director,
Division of Clinical Research, Massachusetts General Hospital
(
MGH
) Research Institute, is the Principal
Investigator of the ELEVATE Study, assisting our internal team,
which is led by Mark Smith, MD, PhD, our Chief Medical
Officer. Dr. Fava was the co-Principal Investigator with Dr.
A. John Rush of the STAR*D study, the largest clinical trial
conducted in depression to date, whose findings were published in
journals such as the
New England Journal of
Medicine
(
NEJM
) and the
Journal of the American
Medical Association
(
JAMA
). We currently anticipate top line results from
the ELEVATE Study in the second half of 2019. In addition to MDD,
we believe preclinical data and positive safety data in all
clinical studies to date support AV-101’s potential to treat
LID, NP and SI, The FDA has granted Fast Track designation for
development of AV-101 both as a potential add-on treatment of MDD
and as a non-opioid treatment for NP.
Our other product candidate in Phase 2 development and initially
focused on MDD is PH10 neuroactive nasal spray. PH10 is a potential
first-in-class, CNS neurosteroid nasal spray administered in
microgram doses for front-line treatment of MDD. PH10 nasal spray
activates nasal chemosensory receptors that, in turn, engage GABA
(gamma-aminobutyric acid) and CRH (corticotropin-releasing hormone)
neurons in the limbic amygdala system. The activation of these
neural circuits is believed to have the potential to lead to rapid
antidepressant effects without psychological side effects, systemic
exposure or safety concerns often associated with current
antidepressants. Based on positive results from a small exploratory
Phase 2a study in MDD in which rapid-onset antidepressant effects
were observed without psychological side effects or systemic
exposure, we are planning for Phase 2b clinical development of PH10
as a first-line treatment for MDD in the second half of
2020.
In addition to our CNS business, we have two pipeline-enabling
programs through our wholly-owned subsidiary, VistaStem
Therapeutics (
VistaStem
). VistaStem is focused on applying pluripotent
stem cell (
hPSC
) technology to discover, rescue, develop and
commercialize proprietary new chemical entities
(
NCEs
)
for CNS and other diseases and regenerative medicine
(
RM
) involving hPSC-derived blood, cartilage, heart
and liver cells. Our internal drug rescue programs are designed to
utilize
CardioSafe
3D
, our customized stem cell
technology-based cardiac bioassay system, to discover and develop
small molecule NCEs for our CNS pipeline or for
out-licensing. To advance potential RM applications of our
cardiac stem cell technology, we have sublicensed to BlueRock
Therapeutics LP, a next generation cell therapy and RM company
established by Bayer AG and Versant Ventures (
BlueRock
Therapeutics
), rights to
certain proprietary technologies relating to the production of
cardiac stem cells for the treatment of heart disease
(the
BlueRock
Agreement
). In a manner
similar to the BlueRock Agreement, we may pursue additional
collaborations or licensing transactions involving blood,
cartilage, and/or liver cells derived from hPSCs for cell-based
therapy, cell repair therapy, RM and/or tissue
engineering.
Our
Strategy
Our
goal is to be a leading biopharmaceutical company committed to
development and commercialization of novel proprietary therapies
for the treatment of CNS diseases and disorders with high unmet
need. Our current focus is on building our opportunities in
neuropsychiatry, with emphasis on MDD, SAD and SI, and in
neurology, with emphasis on LID and NP. Key elements of our
strategy are to:
●
Advance and
complete Phase 3 clinical development of PH94B for on-demand
treatment of SAD;
●
File for and obtain
regulatory approval of PH94B for treatment of SAD in the U.S., if
our Phase 3 development efforts are successful;
●
Commercialize PH94B
in the U.S. on our own, if and when approved for treatment of
SAD;
●
Advance AV-101 and
PH10 through completion of Phase 2 clinical development for
treatment of MDD on our own, and, if our Phase 2 development
efforts are successful, through completion of Phase 3 clinical
development for treatment of MDD, either on our own or with a
collaborator;
●
File for and obtain
regulatory approval of AV-101 and PH10 for treatment of MDD in the
U.S., if they are advanced into and successfully complete Phase 3
development;
●
Commercialize
AV-101 and PH10 in the U.S. on our own or with a collaborator, if
and when approved;
●
Explore potential
of our product candidates, in preclinical studies and in
early-stage clinical clinical studies, in additional CNS
indications, including evaluation of PH94B, AV-101 and PH10 in
additional neuropsychiatry disorders such as PTSD, GAD, and SI, as
well as AV-101’s potential as a treatment for LID and
NP;
●
Evaluate the market
potential and regulatory pathways for our product candidates in
China, the European Union (the
EU
), Japan, Hong Kong, South Korea and
other countries outside the U.S., and move forward where and when
it may make business and strategic sense for us to
proceed;
●
Explore potential
for development and commercialization collaborations to advance
clinical development, file for and obtain regulatory approval of,
and commercialize our product candidates in China, the EU, Japan,
Hong Kong, South Korea, and other global markets outside the
U.S.;
●
Enhance the
probability of our success by developing and commercializing unique
assets with differentiated features, and focus our development
activities on CNS indications where we can make well-informed
go/no-go decisions;
●
Utilize the
strengths of our proprietary hPSC-based cardiotoxicity assay
system,
CardioSafe
3D, and
our scientific know-how to both expand our CNS product candidate
portfolio through our internal drug rescue programs and lessen our
long-term reliance on the success of any one particular program to
facilitate our long-term growth; and
●
Leverage the
strengths of our hPSC-based intellectual property portfolio to
explore potential for one or more additional strategic
out-licensing transactions in the RM and cell therapy (
RM/CT
) fields focused on applications
of blood, cartilage and/or liver cells, with each such transaction
similar in scope and structure to the BlueRock
Agreement.
Our Product Pipeline
The
following table summarizes the status of our development programs
as of the filing date of this Annual Report.
Our Programs
PH94B Neuroactive Nasal Spray for SAD
SAD, a
social phobia that affects
as many as
15 million Americans according to the Anxiety and Depression
Association of America (ADAA)
, is characterized by an
intense and persistent fear of embarrassment, evaluation,
humiliation, judgment, and rejection in everyday social or
performance situations, leading the individual to avoid anxiety and
fear-producing social situations when possible, even if such
avoidance is detrimental to the individual’s employment,
social activities and overall quality of life. SAD is commonly
treated chronically with ADs, which have slow onset of effect
(several weeks or months) and known side effects that may make them
unattractive to individuals intermittently or episodically affected
by SAD. Benzodiazepines, also known as benzos, and beta blockers,
which are prescribed off-label to treat SAD, have been found in
third party literature to have addictive or sedative properties,
and have other adverse effects when used to treat SAD.
PH94B
neuroactive nasal spray is a synthetic investigational neurosteroid
with a novel, rapid-onset mechanism of action that is fundamentally
different from all current treatments for SAD. Developed from
proprietary compounds called pherines and administered at microgram
doses as an odorless nasal spray, PH94B activates nasal
chemosensory receptors that trigger neural circuits in the brain
that suppress fear and anxiety. Specifically, PH94B engages nasal
chemosensory receptors that trigger a subset of neurons in the main
olfactory bulbs (
OB
). OB neurons then stimulate
inhibitory GABAergic neurons in the limbic amygdala, releasing
anxiolytic neuropeptide S, decreasing release of norepinephrine,
and facilitating fear extinction activity of the
limbic-hypothalamic parasympathetic system.
In a
91-patient published, peer-reviewed, randomized, double-blind,
placebo-controlled Phase 2 clinical trial, which included both
laboratory-based public speaking and social situation challenges,
PH94B, administered as a nasal spray at a microgram dose,
significantly improved the primary efficacy endpoint, as assessed
using subjective anxiety ratings on the
Subjective Units of
Distress Scale
(
SUDS
)
, within 10
to 15 minutes of self-administration, without systemic exposure. It
was not observed to be addictive, sedative or have other adverse
events. In a 22-patient, four-week, randomized, double blind,
placebo-controlled pilot Phase 3 crossover study, subjects
receiving PH94B had a significantly greater decrease in average
peak SUDS scores compared to placebo within one week of
treatment.
There was also
a significantly greater decrease in
Liebowitz Social
Anxiety Scale (
LSAS
)
avoidance scores
for subjects who received PH94B first, before crossing over to
placebo. These data were presented in a poster session at
ADAA’s 2019 Annual Conference. PH94B's safety profile was
excellent in all clinical studies to date, without systemic
exposure and with no serious adverse events.
We
acquired PH94B in September 2018 on a non-cash basis through the
issuance of unregistered shares of our common stock under a license
from Pherin Pharmaceuticals, Inc. (
Pherin
) giving us the exclusive
worldwide rights to develop and commercialize PH94B. With its novel
mechanism of pharmacological action, rapid-onset of therapeutic
effects and exceptional safety and tolerability profile shown in
clinical trials to date, we believe PH94B neuroactive nasal spray
is an excellent product candidate with potential to become the
first FDA-approved, on-demand, as-needed treatment for SAD. We are
currently preparing for the initial pivotal Phase 3 study of PH94B
as a first-line on-demand treatment for SAD. Subject to securing
sufficient financing, we currently plan to begin this initial
pivotal Phase 3 study in the first half of 2020.
AV-101 for MDD
According
to the World Health Organization (
WHO
), depression is the leading cause
of disability worldwide, affecting over 300 million people, or
approximately 4.4% of the global population.
Statistics from the U.S. National Institute of
Mental Health (
NIMH
) indicate that a
n estimated 17.3 million
adults in the U.S., or approximately 7.1% of all adults in the
U.S., had at least one major depressive episode in 2017. While most
people will experience depressed mood at some point during their
lifetime, MDD is different. In typical depressive episodes, the
person experiences depressed mood, loss of interest and enjoyment,
and reduced energy leading to diminished activity and impaired
daily functioning for at least two weeks and often much longer.
Symptoms of MDD also may include diminished pleasure 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.
MDD is the psychiatric diagnosis most commonly
associated with suicide.
For
many people, depression cannot be controlled for any length of time
without treatment. Current oral ADs available in the
multi-billion-dollar global depression market, including
commonly-prescribed oral SSRIs and SNRIs,
have modest efficacy, substantial lag of onset of
action, and considerable side effects.
Approximately two out
of every three depression sufferers do not receive adequate
therapeutic benefits from their initial treatment with a
standard AD, and the likelihood of achieving remission of
depressive symptoms declines with each successive AD treatment
attempt. Even after multiple treatment attempts, approximately
one-third of depression sufferers still fail to find an adequately
effective AD. In addition, this trial and error process and the
systemic effects of the various ADs involved may increase the risk
of patient tolerability issues and serious side effects, including
suicidal thoughts and behaviors in certain groups.
New generation ADs with different mechanisms of
action, faster onset activity and fewer side effects are
needed.
Convincing clinical data involving the NMDAR antagonist,
ketamine,
and its isomer, esketamine,
support that the NMDAR complex is involved in
improving depressive symptoms faster than current ADs.
Ketamine-based therapies block the ion channel of the NMDAR, and
this blockade is
associated with significant psychological
side effects and safety concerns.
AV-101
(4-Cl-KYN) is an orally-available investigational prodrug of
7-chlorokynurenic acid (7-Cl-KYNA), a potent and selective full
antagonist of the glycine site of the NMDAR. AV-101’s
mechanism of action is fundamentally different from all current
oral ADs. In preclinical models, after oral administration, AV-101
is actively transported across the blood-brain barrier and
converted into 7-Cl-KYNA in the brain, primarily in astrocytes and
predominantly by kynurenine aminotransferase II, the major enzyme
responsible for the levels of kynurenic acid that can be rapidly
mobilized in the brain. Although 7-Cl-KYNA is a full antagonist at
the glycine site of the NMDAR, it does not block the ion channel of
the NMDAR. Instead, 7-Cl-KYNA is an allosteric antagonist and
down-regulates the NMDAR, which, in part, accounts for
AV-101’s exceptional safety profile and lack of psychological
side effects and safety concerns.
In
clinical and nonclinical testing, AV-101 has good oral
bioavailability, an excellent pharmacokinetic (
PK
) profile, and is not an inhibitor or
inducer of the human cytochrome P450 (
CYP
) isoforms. No binding of AV-101 or
7-Cl-KYNA to off-site targets was identified by an extensive
receptor screening. Moreover, in all clinical trials to date,
AV-101 has been safe and very well-tolerated with no psychological
side effects or safety concerns, and no treatment-related serious
adverse events that are often observed with classic
channel-blocking NMDAR antagonists such as ketamine and amantadine.
We are conducting our ELEVATE Study to evaluate the safety and
efficacy of AV-101 as an add-on treatment of MDD in adult patients
with an inadequate response to standard, FDA-approved oral ADs
s.
We
currently anticipate
that we will be able to report top line results of the ELEVATE
Study during the second half of 2019. The Principal
Investigator of the ELEVATE Study is Dr. Maurizio Fava of Harvard
Medical School. Dr. Fava was the co-Principal Investigator with Dr.
A. John Rush of the largest clinical trial ever conducted in
depression, STAR*D, whose findings were published in journals such
the
New England Journal of
Medicine
and the
Journal of
the American Medical Association
. In published preclinical
studies, AV-101 has been shown to have rapid, persistent,
AMPA-dependent antidepressive effects similar to ketamine controls.
Recent nonclinical results also indicate that chronic
administration of 4-Cl-KYN induces hippocampal neurogenesis, a
hallmark of drugs that have antidepressive effects, and increases
endogenous levels of KYNA, which also is a functional NMDAR glycine
site antagonist.
The FDA
has granted Fast Track designation for development of AV-101 as an
add-on treatment for MDD in adult patients with an inadequate
response to standard, FDA-approved ADs.
We
believe the potential for widespread and long-term use of
ketamine-based therapies for MDD may be limited by the potential
for abuse, dissociative and other psychological side effects and by
the inconvenience and practical challenges associated with required
administration in a clinical setting. In the event that the cost,
side effects, safety concerns, required in-clinic administration or
other factors limit the use of ketamine-based therapies and result
in relapse of MDD and/or suicidal ideation, we believe AV-101 has
potential to prevent relapse of MDD and/or suicidal ideation
without ketamine-like side effects and safety concerns, when
administered orally to ketamine therapy responders, on an at-home
basis, following cessation of ketamine-based therapy. In May 2019,
we announced top line results from the NIMH’s small,
exploratory Phase 2 clinical study of AV-101 as a monotherapy
(given alone) in patients with treatment-resistant depression
(
TRD
), a disease
characterized by serious, long-lasting episodes of depression. The
average length of the current depressive episode of the 19 TRD
patients that completed the NIMH study was 8.6 years. Prior to
participating in the NIMH study, patients had undergone an average
of 7.8 attempts to treat their TRD over their lifetime, using
multiple different antidepressant drugs. In this severe treatment
resistant population, AV-101 given alone, as a monotherapy, did not
demonstrate significant separation from placebo on the primary
outcome measure, the change from baseline in the Hamilton
Depression Rating Scale (
HDRS
) total score compared to placebo.
A key objective of the NIMH study was to evaluate safety and
tolerability of AV-101 in TRD patients, and, consistent with our
Phase 1 studies, AV-101 was very well-tolerated with no
ketamine-like psychological side effects or safety concerns and no
treatment-related serious adverse events. In sharp contrast to the
NIMH monotherapy study in severe TRD patients, our ELEVATE Study is
intended to evaluate AV-101 as an adjunctive therapy (as add-on
treatment given with a current oral AD) in patients experiencing
less severe depression. We plan to leverage our ELEVATE Study
Investigational New Drug application (
IND
) to conduct an exploratory Phase 2
study to assess the efficacy and safety of AV-101 as an add-on
treatment with standard ADs to prevent relapse of MDD following
successful ketamine-based therapy.
PH10 Neuroactive Nasal Spray for MDD
PH10
neuroactive nasal spray is a synthetic investigational neurosteroid
with a novel, rapid-onset mechanism of action that is fundamentally
different from all current treatments for MDD. Developed from
proprietary compounds called pherines and administered at microgram
doses as an odorless nasal spray, PH10 activates nasal chemosensory
receptors that trigger neural circuits in the brain that produce
antidepressant effects. Specifically, PH94B engages nasal
chemosensory receptors that trigger a subset of neurons in the main
OB. OB neurons then stimulate neurons in the limbic amygdala
that release norepinephrine and increase activity of the
limbic-hypothalamic sympathetic nervous system.
In an
exploratory 30-patient Phase 2a clinical trial, PH10 was
well-tolerated and, at microgram doses, demonstrated rapid-onset
antidepressant effects, as measured by the Hamilton Depression
Rating Scale (
HAM
-
D
), without systemic psychological side
effects or safety concerns. PH10 is a new generation antidepressant
with a mechanism of action that is fundamentally different from
AV-101 and all current ADs. As with AV-101, we believe PH10 has
potential for multiple applications in global depression markets,
initially as a stand-alone front line therapy for MDD, and as both
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 ketamine-based
therapy.
We
acquired PH10 from Pherin in October 2018, on a non-cash basis
through the issuance of unregistered shares of our common stock.
Under our license, we have exclusive worldwide rights to develop
and commercialize PH10. We are currently planning for Phase 2b
development of PH10 as a first-line treatment for MDD. Subject to
securing sufficient financing, we plan to submit our IND for a
Phase 2b study of PH10 in MDD in the second half of 2020, and, if
authorized by the FDA, begin the study in the second half of
2020.
Additional Potential Clinical Development Programs
Suicidal Ideation
According
to the WHO, every year approximately 800,000 people worldwide take
their own life and many more attempt suicide. The U.S. Centers
for Disease Control (
CDC
)
views suicide as a major public health concern in the U.S. as rates
of suicide have been increasing for both men and women and across
all age groups. Suicide is the 10th leading cause of death in the
U.S. and is one of just three leading causes that are on the
rise. According to experts in the field of suicidal ideation
(
SI
), characterized as
suicidal thoughts and behavior, the number of Americans who die by
suicide is, since 2010, higher than those who die in motor vehicle
accidents. People of all genders, ages, and ethnicities can be at
risk for suicide. Suicidal ideation is complex and there is no
single cause. The NIMH attributes many different factors to someone
making a suicide attempt, including, but not limited to,
depression, other mental health disorders or substance
abuse. Additionally, according to reports released by the U.S.
Department of Veterans Affairs (
VA
), the U.S. Military Veteran
population is at significantly higher risk for suicide than the
general population.
We are
collaborating with Baylor College of Medicine (
Baylor
) and the VA on a small Phase 1b
clinical trial of AV-101 in healthy volunteer U.S. Military
Veterans from Operation Enduring Freedom, Operation Iraqi Freedom
or Operation New Dawn (the
Baylor
Study
). The Baylor Study is a randomized, double-blind,
placebo-controlled cross-over study designed as a target engagement
study as the first-step in our plans to test potential
anti-suicidal effects of AV-101 in U.S. Military Veterans who
respond to ketamine-based therapy. Dr. Marijn Lijffijt of Baylor is
the Principal Investigator of the Baylor Study. In June 2018, we
entered into a Material Transfer Cooperative Research and
Development Agreement (
MT
CRADA
) with the VA regarding clinical trial material for the
Baylor Study. Government funding from the VA is being provided for
substantially all other study costs.
Neuropathic Pain
NP affects approximately 33 million people in the United States
(excluding patients with back pain) according to an article
published in the Journal of Pain Research in
2017.
NP is a complex, chronic
pain state characterized by a steady burning "pins and needles" or
"electric shock" sensation that results in abnormal neuronal
function after nerve damage.
The American Chronic Pain
Association has identified various causes of NP, including tissue
injury, nerve damage or disease, diabetes, infection, toxins,
certain types of drugs, such as antivirals and chemotherapeutic
agents, certain cancers, and even chronic alcohol intake.
Current
treatments for NP include antidepressants, anticonvulsants (such as
gabapentin and pregabalin), and opioids, among others. However,
current medications may offer inadequate efficacy, have limiting
side effects, and be associated with abuse.
The
effects of AV-101 as a potential new treatment for NP were assessed
in published peer-reviewed preclinical studies involving four
well-established models of pain. In these studies, AV-101 was
observed to have robust, dose-dependent anti-nociceptive effects,
as measured by
dose-dependent reversal of NP in the
Chung (nerve ligation), formalin and carrageenan thermal models in
rats
, and was well-tolerated. The publication, titled:
“
Characterization of the
effects of L-4-chlorokynurenine on nociception in
rodents
,” by lead author, Tony L. Yaksh, Ph.D.,
Professor in Anesthesiology at the University of California, San
Diego, was published in
The
Journal of Pain
in April 2017 (J Pain. 18:1184-1196,
2017)). In recent studies in this preclinical model, AV-101 also
had positive results using pregabalin (Lyrica
®2
) as an active
control. AV-101 demonstrated robust analgesic effects, similar to
Lyrica, but fewer side effects as measured in the rotarod assay.
Neurontin and Lyrica have been associated with sedation and mild
cognitive impairment in third party literature and are often
prescribed for treatment of NP. Other commonly prescribed
medications for NP include drugs targeting opioid receptors in the
brain. Unfortunately, misuse of such drugs can lead to a
significantly increased risk of addiction, and, we believe, their
therapeutic utility for neuropathic pain is unclear.
Based
on successful preclinical studies involving AV-101, gabapentin and
pregabalin, as well as AV-101’s exceptional safety profile in
all preclinical and clinical studies to date, we are exploring the
optimal development path forward, subject to securing sufficient
capital, for Phase 2a clinical development of AV-101 as a new
generation, non-opioid treatment to reduce debilitating NP, as well
as its potential to avoid sedative side effects and cognitive
impairment that have been observed in third party literature to be
associated with other NP treatments, and to reduce the risk of
addiction associated with pain medications targeting opioid
receptors.
The FDA
has granted Fast Track designation for development of
AV-101 as a potential new, non-opioid treatment of NP.
Levodopa-Induced Dyskinesia
Parkinson’s disease (
PD
) is the second most common
neurodegenerative disease worldwide, affecting approximately one
million people in the U.S., according to the Parkinson’s
Foundation. Although there is no "one-size-fits-all”
description of PD, PD is a complex neurodegenerative disorder that
occurs when brain cells responsible for making dopamine, a chemical
that coordinates movement, stop working or die. This results in
progressive deterioration of voluntary motor control. Loss of
dopamine neurons is thought to be due to neurotoxicity associated
with misfolding of proteins and is associated with increased
signaling of glutamate, the most abundant excitatory
neurotransmitter in the brain. Increased glutamate activity is
involved with aberrant neuronal signaling and excitotoxic death of
neurons. Classic PD motor symptoms include muscular rigidity,
resting tremor, and postural and gait impairment. Typically, PD
patients present with a combination of motor and non-motor
symptoms. Non-motor symptoms may include cognitive impairment,
sleep disorders pain and fatigue. There is currently no medication
to slow, delay, stop or cure PD, and currently available treatments
are symptomatic. Treatment of motor symptoms with oral levodopa,
introduced about 50 years ago, remains the gold standard
treatment.
Levodopa-induced dyskinesia
(
LID
) is a
disorder that affects people with PD who are treated with levodopa,
for an extended period of time. Oral levodopa remains the most
effective therapy for motor symptoms of PD. However, after
continuous long-term use (longer than five years), many PD patients
experience LID. Although clinical manifestations of LID are
heterogenous, LID is commonly associated with abnormal involuntary
movements, including chorea and dystonia. These motor complications
tend to become more severe as PD progresses and as the duration of
levodopa treatment is extended, until the impact of LID may
compromise the advantage of treatment with levodopa. PD treatment
with levodopa is routinely delayed due to concerns over LID. Once
LID develops, levodopa-treated PD patients may be faced with a
choice between immobility due to untreated and uncontrolled PD, or
mobility with the associated LID. Studies published in the
New England
Journal of Medicine
and
Movement
Disorders
have shown LID
develops in approximately 45% of levodopa-treated Parkinson’s
disease patients after five years and 80% after 10 years of
levodopa treatment. In the U.S., there are an estimated 150,000 to
200,000 people with PD who are impacted by LID.
AV-101 is not a dopamine-based drug candidate. Rather, as a member
of a new generation of investigational medicines in neuropsychiatry
and neurology known as NMDA glutamate receptor modulators,
AV-101’s active metabolite, 7-Cl-KYNA, is a potent and
selective NMDA receptor glycine site antagonist with
neuroprotective properties, which receptor plays a major role in
glutamatergic signaling and has been shown to be a therapeutic
target for LID.
In a
recently reported preclinical study in the “gold
standard” MPTP monkey model of PD and LID, AV-101’s
efficacy against LID was measured through behavioral scores on a
dyskinesia scale, and a Parkinsonian disability scale was used to
measure levodopa anti-parkinsonian efficacy. This study
demonstrated that AV-101 significantly (p = 0.01) reduced LID.
Importantly, AV-101 did not reduce the timing, extent, or duration
of the therapeutic effects of levodopa, indicating that AV-101 did
not impact the anti-parkinsonian efficacy of levodopa. Moreover,
AV-101 did not cause adverse events
often associated with amantadine therapy for LID, such as
hallucinations, dizziness, and falls. These recent preclinical
results confirm our prior antidyskinesia study in this MPTP monkey
model. We believe these preclinical data and AV-101’s
positive safety profile in all clinical studies to date support
AV-101’s potential to treat LID, while both maintaining the
antiparkinsonian benefits of levodopa and without causing
hallucinations or other serious side effects that may be associated
with amantadine therapy for LID.
As a result, we are
exploring the optimal development path forward, subject to securing
sufficient capital, for Phase 2a clinical development of AV-101 as
a new generation treatment for LID.
General Anxiety Disorder
Generalized
Anxiety Disorder (
GAD
) is a
common chronic neuropsychiatric disorder characterized by
persistent, debilitating and excessive concern and worry about
family, friends, health, money, work, or other everyday issues and
situations. Individuals with GAD find it difficult to control their
worry and may worry more about actual circumstances than seems
appropriate. They may also expect the worst even when there is no
apparent reason to do so. GAD is diagnosed when an individual is
unable or finds it difficult to control worry on more days than not
for at least six months and has three or more of the many symptoms
of GAD, such as excessive and ongoing worrying and tension, an
unrealistic view of problems, restlessness, irritability,
difficulty concentrating, or being easily startled. This
differentiates GAD from worry that may be specific to a set
stressor or for a more limited period of time. According to the
Anxiety and Depression Association, GAD affects approximately 6.8
million adults in the U.S. in any given year. GAD comes on
gradually and can begin across the life cycle, though the risk is
highest between childhood and middle age.
People
with GAD do not know how to stop the worry cycle and feel it is
beyond their control, even though they usually realize that their
anxiety is more intense than the situation warrants. Many
individuals with GAD may avoid situations because they have the
disorder or they may not take advantage of important professional
or social opportunities in their lives due to their anxiety and
worry. When their anxiety is severe, it is difficult for
individuals with GAD to carry out even the simplest of daily
activities. Currently, the standard of care for GAD includes
psychotherapy and certain medications with limited therapeutic
benefits and various side effects and safety concerns, including
antidepressants (SSRIs and SNRIs) and benzodiazepines.
PH94B
demonstrated efficacy in a small placebo-controlled study in
patients with GAD. Twenty one patients were randomized to receive
200 pg PH94B or placebo in a one second aerosol pulse to the
chemosensory epithelium of the anterior nasal septum. Thirty
minutes after treatment there was mean reduction of 32.0% for the
PH94B group and 19.6% for the placebo group in the total HAM-A
score. Electrophysiological changes (respiratory, cardiac, and
electrodermal frequency), concordant with the reduction in anxiety,
were significantly greater for the PH94B group. We believe these
transient anti-anxiety effects of PH94B may warrant further
investigation in a Phase 2b GAD trial.
Post-Traumatic Stress Disorder
Post-traumatic stress disorder (
PTSD
) is a clinically diagnosed psychiatric disorder
that develops in some people who have experienced or witnessed a
shocking, scary, dangerous or life-threatening event, such as
military combat, natural disasters, terrorist incidents, serious
accidents, or physical or sexual assault in adulthood or
childhood. Symptoms of PTSD include flashbacks, nightmares,
severe anxiety, uncontrollable intrusive thoughts, and emotional
numbing after the event. More than 8 million people in the U.S.
suffer from PTSD. Anyone can develop PTSD at any age. According to
the National Center for PTSD, about 7 or 8 out of every 100 people
will experience PTSD at some point in their lives. PTSD is often
accompanied by depression, substance abuse or one or more of the
other anxiety disorders.
It is natural to feel afraid during and after a traumatic
situation. Fear triggers many split-second changes in the body to
help defend against danger or to avoid it. This
“fight-or-flight” response is a typical reaction meant
to protect a person from harm. Because PTSD is associated with a
heightened “fight or flight” response mediated by
increased sympathetic nervous response to conditioned stimuli, an
agent which decreases sympathetic tone may be able to treat some
symptoms of PTSD. Our PH94B neuroactive nasal spray is a
neurosteroid that binds to chemosensory cells in the olfactory bulb
and indirectly decreases amygdala function, reduces stress-induced
blood pressure, heart rate and sweating mediated by the sympathetic
nervous system. In Phase 2 studies, at microgram doses, PH94B
has been shown to have anti-anxiety effects in patients with both
generalized anxiety disorder and social anxiety
disorder. PH94B may therefore have utility either as
monotherapy or as add-on therapy in PTSD.
Available
therapeutic options for PTSD are limited, including only two
FDA-approved SSRI antidepressants, which have limited efficacy,
undesirable side effects, and target only the symptoms of PTSD, not
the underlying disorder itself. W
e are
currently assessing PH94B’s potential for Phase 2a clinical
development as a new generation, rapid-acting, anxiolytic for
treatment of PTSD.
Epilepsy
Epilepsy
is one of the most prevalent neurological disorders, affecting
almost 1% of the worldwide population. According to the Epilepsy
Foundation, as many as three million Americans have epilepsy, and
one-third of those suffering from epilepsy are not effectively
treated with currently available medications. In addition, standard
anticonvulsants can cause significant side effects, which
frequently interfere with compliance.
Glutamate
is a neurotransmitter that is also critically involved in the
pathophysiology of epilepsy. Through its stimulation of the NMDAR
subtype, glutamate has been implicated in the neuropathology and
clinical symptoms of the disease. In support of this, NMDAR
antagonists are potent anticonvulsants. However, as noted, classic
ion channel-blocking NMDAR antagonists are limited by adverse
effects, such as neurotoxicity, declining mental status, and the
onset of psychotic symptoms following administration of the drug.
The endogenous amino acid glycine modulates glutamatergic
neurotransmission by stimulating the glycine coagonist site of the
NMDAR. Glycine site antagonists such as AV-101’s active
metabolite, 7-Cl-KYNA, inhibit NMDAR function and are therefore
anticonvulsant and neuroprotective. Importantly, glycine site
antagonists have fewer and less severe side effects than classic
ion channel-blocking NMDAR antagonists and other antiepileptic
agents, making them a safer potential alternative to, and one
expected to be associated with greater patient compliance than,
currently available anticonvulsant medications.
In
addition, another active metabolite of AV-101,
4-Cl-3-hydroxyanthranilic acid, inhibits the synthesis of
quinolinic acid (
QUIN
),
which is an endogenous NMDAR agonist that causes convulsions and
excitotoxic neuronal damage.
AV-101
has been shown to protect against seizures and neuronal damage in
preclinical animal models of epilepsy. We believe AV-101’s
dual action as a NMDAR GlyB antagonist and QUIN synthesis
inhibitor, and exploratory preclinical data, together with human
safety data in all clinical studies to date, may provide support
for AV-101’s potential as a Phase 2a clinical development
candidate for treatment of epilepsy. As a result, subject to
securing sufficient capital, we anticipate conducting additional
preclinical studies in 2020 to assess AV-101’s optimal
development path forward and potential for future Phase 2a clinical
development as a new generation treatment for
epilepsy.
VistaStem Therapeutics - Stem Cell Technology-Based
Programs
Stem
cells are the building blocks of all cells of the human
body. They have the potential to develop into many
different mature cell types. Stem cells are defined by a
minimum of two key characteristics: (i) their capacity to
self-renew, or divide in a way that results in more stem cells; and
(ii) their capacity to differentiate, or turn into mature,
specialized cells that make up tissues and organs. There are
many different types of stem cells that come from different places
in the body or are formed at different times throughout our lives,
including pluripotent stem cells and adult or tissue-specific stem
cells, which are limited to differentiating into the specific cell
types of the tissues in which they reside. We focus exclusively on
hPSCs, which can be differentiated into all of the more than 200
types of cells in the human body, can be expanded readily, and have
diverse medical research, drug discovery, drug rescue (
DR
), drug development and therapeutic
applications. We believe hPSCs can be used to develop numerous cell
types, tissues and customized assays that can mimic complex human
biology, including heart biology for DR applications.
VistaStem Therapeutics (
VistaStem
) is our wholly owned subsidiary focused on
applying our hPSC technology to discover, rescue, develop and
commercialize proprietary new chemical entities
(
NCEs
)
for our CNS pipeline and cellular therapies and RM involving
hPSC-derived blood, cartilage, heart and liver cells.
We
used our hPSC-derived human heart cells to develop
CardioSafe
3D™, our customized
in vitro
bioassay system
for predicting heart toxicity of potential DR NCEs. We
believe
CardioSafe
3D is
more comprehensive and clinically predictive than the hERG assay
and provides us with new generation human cell-based technology to
identify and evaluate DR candidates and develop DR NCEs for
our CNS pipeline and/or out-licensing.
Drug Rescue
Our DR
activities are focused on producing, for our internal CNS pipeline
or out-licensing, novel, proprietary and safer variants of
still-promising NCEs previously discovered, optimized and tested
for efficacy by pharmaceutical companies and others but terminated
before FDA approval due to unexpected heart toxicity. Our DR
strategy involves using
CardioSafe
3D to assess the cardiac
toxicity that caused certain NCEs available in the public domain to
be terminated, and then produce and develop new, potentially safer,
and proprietary NCEs. We believe the pre-existing public
domain knowledge base supporting the therapeutic and commercial
potential of NCEs that we target for our DR programs will provide
us with a valuable head start as we launch each of our potential DR
programs. The essential components of our DR strategy are to (i)
leverage the substantial prior investments by global pharmaceutical
companies and others in discovery, optimization and efficacy
validation of the NCEs we identify in the public domain and (ii)
use
CardioSafe
3D to
enhance our understanding of the cardiac liability profile
of such NCEs, insight not previously available when the NCEs
were originally discovered, optimized for efficacy and developed by
others, and (iii) demonstrate preclinical proof-of-concept
(
POC
) as to the efficacy
and safety of new, safer DR NCEs in standard
in vitro
and
in vivo
models earlier in development
and with substantially less investment in discovery and preclinical
development than was required of others prior to their decision to
terminate the original NCE. In this context, POC means that
the lead DR NCE, as compared to the original previously-terminated
original NCE
,
demonstrates
both (i) equal or superior efficacy in the same, or a similar,
in vitro
and
in vivo
preclinical efficacy models
used by the initial developer of the previously-terminated
NCE
before it was
terminated for cardiac safety reasons, and (ii) significant
reduction of concentration dependent cardiotoxicity in
CardioSafe
3D.
Regenerative Medicine
Stem
cell technology-based cell therapy (
CT
) and RM have the potential to
transform healthcare by providing new approaches for treating the
fundamental mechanisms of disease. We currently intend to establish
strategic CT- and/or RM-focused collaborations to leverage our hPSC
technology platform, our expertise in human biology,
differentiation of hPSCs to develop functional adult human cells
and tissues involved in human disease, including blood, bone,
cartilage, heart and liver cells for CT and RM purposes.
We have exclusively sublicensed to
BlueRock Therapeutics, a next generation RM company established by
Bayer AG and Versant Ventures, rights to certain proprietary
technologies relating to the production of cardiac stem cells for
the treatment of heart disease. In a manner similar to our
agreement with BlueRock Therapeutics, we may pursue additional CT
and RM collaborations or licensing transactions involving blood,
cartilage, and/or liver cells derived from hPSCs for CT and RM
applications.
Intellectual Property
We
strive to protect the proprietary know-how and technology that we
believe is important to our business, including seeking and
maintaining patents intended to cover our product candidates and
related pharmaceutical compositions, their methods of use,
including therapeutic and prognostic methods, as well as processes
for their manufacture, and any other aspects of our discoveries and
inventions that are commercially important to the development of
our business.
We may
also rely on trade secrets to protect aspects of our business that
are not amenable to, or that we do not consider appropriate for,
patent protection. We also rely on know-how, continuing
technological innovation and in-licensing opportunities to develop
and maintain our proprietary position. We seek to obtain domestic
and international patent protection, and endeavor to promptly file
patent applications for new commercially valuable
inventions.
To
protect our rights to our proprietary technology, we require all
employees, as well as our external collaborators, consultants and
CROs when feasible, to enter into agreements that require
disclosure and assignment to us of ideas, developments, discoveries
and inventions made by these employees, consultants, and CROs in
the course of their service to us.
We plan
to continue to expand our intellectual property estate by filing
patent applications directed to compositions, methods of use,
including treatment and patient selection, formulations and
manufacturing processes created or identified from our ongoing
development of our product candidates.
Patents
We own
and have licensed granted patents and pending patent applications
in the U.S. and in certain foreign countries. These patent
properties include, but are not limited to:
AV-101
●
Two granted U.S.
patents related to the treatment of depression with AV-101 and to
certain unit dose formulations of AV-101 effective to treat
depression;
●
Pending U.S. patent
applications and foreign granted patents and pending foreign patent
applications related to treatment of various disorders, including
depression, LID, NP, tinnitus and obsessive-compulsive disorder;
and
●
Pending U.S. patent
application related to the prognostic identification of high and
low responders to treatment of various CNS disorders with
AV-101.
The
U.S. and foreign patents related to AV-101 nominally expire between
2034 and 2040, depending on the particular subject matter, subject
to extensions that may be available on a country-by-country
basis.
PH94B (licensed by us from Pherin)
●
Two granted U.S.
patents and other foreign patents related to the reduction of
anticipatory anxiety or social phobic response.
The
U.S. patents related to PH94B nominally expire either in 2025 or
2028, respectively, and foreign patents nominally expire in 2026,
subject to extensions that may be available on a country-by-country
basis.
PH10 (licensed by us from Pherin)
●
One allowed U.S.
patent application related to treatment of depressive disorders;
and
●
Granted foreign
patents and pending foreign patent applications related to
treatment of depressive disorders.
The
U.S. and foreign patents related to PH10 nominally expire in 2033,
subject to extensions that may be available on a country-by-country
basis.
Stem Cell Technology (owned by us and/or licensed by us from the
University Health Network (Toronto) or Icahn School of Medicine at
Mount Sinai)
Cardiac Cells
●
U.S. and foreign
patents and patent applications relating to methods for enriching
pluripotent stem cell-derived cardiomyocyte cells, methods for
generating epicardium cells, methods for making and using
sino-atrial node-like pacemaker and ventricular-like cardiomyocytes
and methods for generation of atrial and ventricular cardiomyocyte
lineages.
The
U.S. and foreign patents and patent applications related to cardiac
stem cells nominally expire between 2031 and 2037, subject to
extensions that may be available on a country-by-country basis.
Additionally, therapeutic and certain other fields of use have been
licensed by us to BlueRock Therapeutics under the BlueRock
Agreement.
Blood Cells
●
U.S. and foreign
patents and patent applications relating mesoderm and definitive
endoderm cell populations, and to populations of hematopoietic
progenitors.
The
U.S. and foreign patents and patent applications related to blood
stem cells nominally expire between 2023 and 2032, subject to
extensions that may be available on a country-by-country
basis.
Cartilage and Chondrocyte Cells
●
U.S. and foreign
patents and patent applications relating to methods and
compositions for generating chondrocyte lineage cells and cartilage
like tissue.
The
U.S. and foreign patents and patent applications related to blood
stem cells nominally expire in 2034, subject to extensions that may
be available on a country-by-country basis.
Liver and Biliary Cells
●
U.S. and foreign
patents and patent applications relating to methods for generating
hepatocytes and cholangiocytes from pluripotent stem cells and to
toxicity typing using liver stem cells.
The
U.S. and foreign patents and patent applications related to blood
stem cells nominally expire between 2021 and 2034.
Patent Term
The
base term of a U.S. patent is 20 years from the filing date of the
earliest-filed non-provisional patent application from which the
patent claims priority. The term of a U.S. patent can be lengthened
by patent term adjustment, which compensates the owner of the
patent for administrative delays at the USPTO. In some cases, the
term of a U.S. patent is shortened by a terminal disclaimer that
reduces its term to that of an earlier-expiring and related
patent.
Depending
upon the timing, duration and specifics of the FDA approval of our
drug candidates, if any, some of our U.S. patents may be eligible
for limited patent term extension under the Drug Price Competition
and Patent Term Restoration Act of 1984, commonly referred to as
the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a
patent restoration term of up to five years as compensation for
patent term lost during product development and the FDA regulatory
review process. However, patent term restoration cannot extend the
remaining term of a patent beyond a total of 14 years from the
product’s approval date. The patent term restoration period
is generally one-half the time between the effective date of an IND
and the submission date of an NDA (
testing phase
), plus the time between
the submission date of an NDA and the approval of that application
(
approval phase
). This
patent term restoration period may be reduced by the FDA if it
finds that applicant did not act with due diligence during the
testing phase or the approval phase. Only one patent applicable to
an approved drug is eligible for the extension and the application
for the extension must be submitted prior to the expiration of the
patent. The U.S. PTO, in consultation with the FDA, reviews and
approves the application for any patent term extension or
restoration. In the future, if circumstances permit, we intend to
apply for restoration of patent term for one of our then owned or
licensed patents, if any, to add patent life beyond its current
expiration date, depending on the expected length of the clinical
trials and other factors involved in the filing of the relevant
NDA.
Some of
our products may also be entitled to certain non-patent-related
data exclusivity under the FDCA. The FDCA provides a five-year
period of non-patent data exclusivity within the United States to
the first applicant to obtain approval of an NDA for a new chemical
entity. A drug is a new chemical entity if the FDA has not
previously approved any other new drug containing the same active
moiety, which is the molecule or ion responsible for the action of
the drug substance. During the exclusivity period, an abbreviated
new drug application (
ANDA
), or a 505(b)(2) NDA may not be
submitted by another company for another drug containing the same
active moiety, regardless of whether the drug is intended for the
same indication as the original innovator drug or for another
indication, where the applicant does not own or have a legal right
of reference to all the data required for approval. However, an
application may be submitted after four years if it contains a
certification of patent invalidity or non-infringement to one of
the patents listed with the FDA Orange Book by the innovator NDA
holder. The FDCA also provides three years of marketing exclusivity
for a full NDA, or supplement to an existing NDA if new clinical
investigations, other than bioavailability studies, that were
conducted or sponsored by the applicant are deemed by the FDA to be
essential to the approval of the application, for example, for new
indications, dosages or strengths of an existing drug. Three-year
exclusivity prevents the FDA from approving ANDAs and 505(b)(2)
applications that rely on the information that served as the basis
of granting three-year exclusivity. This three-year exclusivity
covers only the modification for which the drug received approval
on the basis of the new clinical investigations, and does not
prohibit the FDA from approving ANDAs for drugs containing the
active agent for the original indication or condition of use.
Five-year and three-year exclusivity will not delay the submission
or approval of a full NDA. However, an applicant submitting a full
NDA would be required to conduct or obtain a right of reference to
all of the nonclinical studies and adequate and well-controlled
clinical trials necessary to demonstrate safety and
efficacy.
Some
foreign jurisdictions, including Europe and Japan, also have patent
term extension provisions, which allow for extension of the term of
a patent that covers a drug approved by the applicable foreign
regulatory agency. In the future, if and when our pharmaceutical
products receive FDA approval, we expect to apply for patent term
extension on patents covering those products, their methods of use,
and/or methods of manufacture.
Trade Secrets
In
addition to patents, we may rely on trade secrets and know-how to
develop and maintain our competitive position. We protect trade
secrets, if any, and know-how by establishing confidentiality
agreements and invention assignment agreements with our employees,
consultants, scientific advisors, contractors and partners. These
agreements provide that all confidential information developed or
made known during the course of an individual or entity’s
relationship with us must be kept confidential during and after the
relationship. These agreements also generally provide that all
relevant inventions resulting from work performed for us or
relating to our business and conceived or completed during the
period of employment or assignment, as applicable, shall be our
exclusive property. In addition, we take other appropriate
precautions, such as physical and technological security measures,
to guard against misappropriation of our proprietary information by
third parties.
Trademarks
The
Company also owns a registered trademark in the U.S. for
“VISTAGEN,” which was renewed in 2014. In addition, we
use trademarks in our business for
CardioSafe
3D and
LiverSafe
3D.
Strategic Transactions and Relationships
Strategic
collaborations are an important cornerstone of our corporate
development strategy. We believe that our highly selective
outsourcing of certain research, development, manufacturing and
regulatory activities gives us flexible access to a broad range of
capabilities and expertise at a lower overall cost than developing
and maintaining such capabilities and expertise internally on a
full-time basis. In particular, we contract with third parties for
certain manufacturing, nonclinical development, clinical
development and regulatory affairs support. We may seek multiple
additional strategic collaborations and relationships focused on
development and commercialization of our product candidates in
regions outside the U.S.
Manufacturing and Supply
We
neither own nor operate, and currently have no plans to own or
operate, any manufacturing facilities. We currently source all of
our clinical and nonclinical material supply through third party
contract development and manufacturing organizations (
CDMOs
). If our product candidates are
approved, we intend to contract with CDMOs to produce all of our
future commercial supplies on our behalf.
We have
established relationships with CMOs under which the CMOs
manufacture clinical and nonclinical supplies of the active
pharmaceutical ingredient (
API
), as well as drug product, for
AV-101, PH94B and PH10 on a purchase order basis. When produced,
all clinical supplies are certified by our CDMOs to have been
manufactured under current Good Manufacturing Practices
(
cGMP
). Starting materials
and key intermediates to support the production of these candidates
are either manufactured by other qualified suppliers or purchased
from chemical suppliers. We do not currently have arrangements in
place for either long-term supply or redundant supply of bulk drug
substance or drug product for AV-101, PH94B and PH10. Our CMOs
manufacture such product candidates on a purchase order basis under
master service and quality agreements. We intend to put a long-term
commercial supply agreement in place at the appropriate time for
drug substance and drug product for each product candidate, if
development continues. We plan to mitigate potential commercial
supply risks for any products that are approved in the future
through inventory management and through exploring additional
back-up manufacturers to provide API and/or drug
product.
We
continue to refine and scale up the manufacturing process for PH94B
to supply our Phase 3 clinical trials, and for AV-101 and PH10 to
supply future clinical and nonclinical studies. We believe we
currently have sufficient AV-101 drug substance on hand for our
ongoing ELEVATE Study and the ongoing Baylor/VA Study.
AV-101,
PH94B and PH10 are small molecule drugs. The current syntheses of
AV-101, PH94B and PH10 are reliable and reproducible from readily
available starting materials. On-going development work is in
progress to ensure that these synthetic routes are cost-effective ,
robust and amenable to large-scale manufacturing. We expect to
continue to identify and develop drug candidates that are amenable
to cost-effective manufacturing at contract manufacturing
facilities.
Sales
and Marketing
We
believe that we can successfully launch and commercialize PH94B on
our own in the U.S., if approved by the FDA, through the hiring of
a targeted sales and marketing force. If an NDA for PH94B in the
treatment of SAD is approved by the FDA following our Phase 3
clinical development program, we anticipate hiring and deploying a
field sales force of key account managers calling on hospitals and
specialty representatives calling on healthcare professionals who
treat SAD. We expect to focus our future sales and marketing
efforts, if PH94B is approved for SAD, on psychiatrists and select
primary care physicians and potentially on pediatricians who are
likely to see adolescents, as well as nurse practitioners and
psychologists who, in some states, are permitted to prescribe
medications.
Should
we advance AV-101 and PH10 through successful completion of Phase 2
and Phase 3 clinical development for treatment of MDD and/or other
CNS indications, we plan to file for and obtain regulatory approval
of AV-101 and PH10 in the U.S. and then commercialize them in the
U.S., either on our own or with a collaborator.
To
develop and commercialize one or more our product candidates in
pharmaceutical markets outside the U.S., if approved in such
markets, we may decide to establish agreements or alliances with
one or more pharmaceutical company collaborators and/or
distributors. Currently, in China, the EU, Japan, Hong Kong, and
South Korea, we plan to develop and commercialize our product
candidates with third-party collaborators with successful
operations involving development and/or commercialization of CNS
products, especially neuropsychiatry products. We anticipate that
such collaborations would involve local clinical development,
regulatory submissions comparable to those required by the FDA in
the U.S. and commercial activities necessary to monetize our
product candidates. We may also consider other partnering
opportunities if we believe the partnering opportunity will add
significant value to our efforts, including through local
capabilities and infrastructure, as well as speed to market and
financial contributions, in each case depending on, among other
things, the applicable indications, the expected development
pathway and related costs, deal terms, our available resources, and
whether the transaction makes strategic sense.
Competition
The
biopharmaceutical industry is highly competitive and subject to
rapid and significant technological change. The large and growing
markets for SAD, MDD, NP, LID, and other CNS diseases and disorders
make them attractive therapeutic areas for biopharmaceutical
businesses.
We face potential
competition from many different sources, including major
pharmaceutical, specialty pharmaceutical, and biotechnology
companies, academic institutions, governmental agencies, and public
and private research institutions. Any product candidates that we
successfully develop and commercialize will compete with existing
therapies and new therapies that may become available in the
future. Many of our competitors may have significantly greater
financial resources and expertise in research and development,
manufacturing, preclinical testing, conducting clinical studies,
obtaining regulatory approvals, and marketing approved products
than we do. Several of these entities have commercial products,
robust drug pipelines, readily available capital, and established
research and development organizations.
Mergers and
acquisitions in the pharmaceutical, biotechnology, and diagnostic
industries may result in even more resources being concentrated
among a smaller number of our competitors. These competitors also
compete with us in recruiting and retaining qualified scientific
and management personnel and establishing clinical study sites and
patient registration for clinical studies, as well as in acquiring
technologies complementary to, or necessary for, our programs.
Small or early-stage companies may also prove to be significant
competitors, particularly through collaborative arrangements with
large and established companies. It is probable that the number of
companies seeking to develop products and therapies similar to our
products will increase.
The key competitive factors affecting
the success of all of our product candidates, if approved, are
likely to be their efficacy, safety, convenience, price, the level
of branded and generic competition, and the availability of
reimbursement from government and other third-party
payors.
Although
currently there are no FDA-approved therapies for SAD with the
mechanism of action of PH94B, we are aware of
two companies with development programs
potentially focused on SAD. However, neither of those companies is
developing a potential treatment for SAD that is either a nasal
spray or involves the same mechanism of pharmacological action as
PH94B.
Although
currently there are no FDA-approved oral therapies for MDD with the
mechanism of
pharmacological
action of either AV-101 or PH10, we are aware of
numerous pharmaceutical and biotechnology
companies that are developing therapies targeting the MDD market,
including with drug candidates focused on the NMDAR. Certain of the
potential MDD therapies being developed are broad NMDAR antagonists
and tend to have multiple target actions. We believe AV-101 is an
NMDAR glycine site antagonist and is modulatory, without negative
off-target activity in preclinical screening. We are aware of the
numerous companies developing or commercializing therapies for MDD
or NMDAR-targeted therapies for other CNS disorders. Such companies
include but are not limited to, Acadia, Adamas, Alkermes, Allergan,
Aptynix, Avanir, Axsome, Biohaven, BlackThorn, Cadent, Cerecor, Eli
Lilly, , Janssen, Lundbeck, Minerva, Navitor, NeuroRx, Otsuka,
Novartis, Perceptive Neuroscience, Relmada, Sage, Seelos, Shionogi,
Taisho and Takeda.
Additionally, we expect that AV-101 and
PH10 will have to compete with a variety of therapeutic procedures
for treatment of MDD, such as psychotherapy and
electroconvulsive therapy.
While
we believe that our employees and consultants, scientific
knowledge, technology, and development experience provide us with
competitive advantages, many of our potential competitors, alone or
with their strategic partners, have substantially greater
financial, technical and human resources than we do and
significantly greater experience in the discovery and development
of product candidates, obtaining FDA and other regulatory approvals
of treatments and the commercialization of those
treatments.
We
believe that VistaStem’s hPSC technology platform, the
hPSC-derived human cells we produce, and the customized human
cell-based assay systems we have formulated and developed are
capable of being competitive in the diverse and growing global stem
cell, CT and RM markets, including potential markets involving the
sale of hPSC-derived cells to third-parties for their
in vitro
drug discovery and safety
testing, contract predictive toxicology drug screening services for
third parties, internal drug discovery, drug development and DR of
new NCEs, and RM, including
in
vivo
CT research and development. A representative list of
such biopharmaceutical companies pursuing one or more of these
potential applications of adult and/or hPSC technology includes,
but is not limited to, the following: Acea, Astellas, Athersys,
BioCardia, BioTime, Caladrius, Cellectis, Cellerant, Cytori,
Fujifilm, HemoGenix, International Stem Cell, Neuralstem, Organovo,
PluriStem, and Stemina BioMarker Discovery. Pharmaceutical
companies and other established corporations such as Bristol-Myers
Squibb, Charles River, GE Healthcare, GlaxoSmithKline, Novartis,
Pfizer, Roche Holdings, Thermo Fisher and others have been and are
expected to continue pursuing internally various stem cell-related
research and development programs. Many of the foregoing companies
have greater resources and capital availability and as a result,
may be more successful in their research and development programs
than us. We anticipate that acceptance and use of hPSC
technology for drug development, CT and RM will continue to occur
and increase at pharmaceutical and biotechnology companies in the
future.
Government Regulation
Government
authorities in the U.S. at the federal, state and local level and
in other countries extensively regulate, among other things, the
research, development, testing, manufacture, quality control,
approval, labeling, packaging, storage, record-keeping, promotion,
advertising, distribution, post-approval
monitoring/pharmacovigilance, safety and periodic reporting,
marketing and export and import of drug products. Generally, before
a new drug can be marketed in a given jurisdiction, considerable
data demonstrating its quality, safety and efficacy must be
obtained and/or generated, organized into a format specific to each
regulatory authority, submitted for review and the drug must be
approved by the relevant regulatory authority or
authorities.
U.S. Drug Development
In the
U.S., the FDA regulates drugs under the Federal Food, Drug, and
Cosmetic Act (
FDCA
), and
its implementing regulations. Drugs are also subject to other
federal, state and local statutes and regulations. The process of
obtaining regulatory approvals and the subsequent compliance with
appropriate federal, state, and local statutes and regulations
require the expenditure of substantial time and financial
resources. Failure to comply with the applicable U.S. requirements
at any time during the product development process, approval
process or after approval, may subject a company to administrative
or judicial sanctions. These sanctions could include, among other
actions, the FDA’s refusal to approve pending applications,
withdrawal of an approval, a clinical hold on a clinical
investigation, warning or untitled letters, product recalls or
withdrawals from the market, product seizures, total or partial
suspension of production or distribution, injunctions, fines,
refusals of government contracts, restitution, disgorgement, or
civil penalties or criminal prosecution. Any agency or judicial
enforcement action could have a material adverse effect on
us.
Each of
our product candidates must be approved by the FDA through the NDA
process before they may be legally marketed in the U.S. The process
required by the FDA before a drug may be marketed in the U.S.
requires substantial time, effort and financial resources and
generally involves the following:
●
Completion of
extensive non-clinical studies and testing, sometimes referred to
as non-clinical laboratory tests, non-clinical animal studies and
formulation studies, in accordance with applicable regulations,
including the FDA’s current Good Laboratory Practice
(
cGLP
)
regulations;
●
Submission to the
FDA of an IND application, which must become effective before human
clinical trials may begin;
●
Approval by an
independent institutional review board (
IRB
) or ethics committee representing
each clinical trial site before each trial may be
initiated;
●
Performance of
adequate and well-controlled human clinical trials in accordance
with applicable IND and other clinical trial-related regulations,
sometimes collectively referred to as good clinical practice
(
cGCP
) to establish the
safety and efficacy of the proposed drug for each proposed
indication;
●
Submission to the
FDA of an NDA for marketing approval of a new drug;
●
A determination by
the FDA within 60 days of its receipt of an NDA to accept and file
the NDA for review; Satisfactory completion of a potential FDA
pre-approval inspection of the manufacturing facility or facilities
where the drug is produced to assess compliance with cGMP
requirements to assure that the facilities, methods and controls
are adequate to preserve the drug’s identity, strength,
quality and purity;
●
Potential FDA audit
of the non-clinical and/or clinical trial sites that generated the
data in support of the NDA; and
●
Payment of
applicable user fees and FDA review and approval of the NDA,
including consideration of the views of any FDA advisory committee,
prior to any commercial marketing or sale of the drug in the United
States.
The
data required to support an NDA are generated in two distinct
development stages: nonclinical and clinical. For NCEs, the
nonclinical development stage generally involves synthesizing the
active component, developing the formulation and determining the
manufacturing process, as well as carrying out non-human
toxicology, pharmacology and drug metabolism studies in the
laboratory, which support subsequent clinical testing. Nonclinical
tests include laboratory evaluation of product chemistry,
formulation, stability and toxicity, as well as animal studies to
assess the characteristics and potential safety and efficacy of the
product. The conduct of the nonclinical tests must comply with
federal laws and regulations, including, for animal studies, the
Animal Welfare Act and cGLP. The sponsor must submit the results of
the non-clinical tests, together with manufacturing information,
analytical data, any available clinical data or literature and a
proposed clinical protocol, to the FDA as part of the
IND.
An IND
is a request for authorization from the FDA to administer an
investigational drug product to humans. Some non-clinical testing
may continue even after the IND is submitted, but an IND must
become effective before human clinical trials may begin. The
central focus of an IND submission is on the general
investigational plan and the protocols for human trials. The IND
automatically becomes effective 30 days after receipt by the FDA,
unless the FDA raises concerns or questions regarding the proposed
clinical trials, including whether subjects will be exposed to
unreasonable health risks, and places the IND on clinical hold
within that 30-day time period. In such a case, the IND sponsor and
the FDA must resolve any outstanding concerns before the clinical
trial can begin. The FDA may also impose clinical holds on a drug
candidate at any time before or during clinical trials due to
safety concerns or non- compliance. Accordingly, we cannot be sure
that submission of an IND will result in the FDA allowing clinical
trials to begin, or that, once begun, issues will not arise that
could cause the trial to be suspended or terminated.
The
clinical stage of development involves the administration of the
drug candidate to healthy volunteers or to patients with the
disease or condition being studied under the supervision of
qualified investigators, generally physicians not employed by or
under the trial sponsor’s control. Clinical trials must be
conducted in accordance with cGCPs, which include the requirement
that all research subjects provide their informed consent for their
participation in any given clinical trial. Clinical trials are
conducted under protocols describing, among other details, the
objectives of the clinical trial, dosing procedures, subject
selection and exclusion criteria, and the parameters to be used to
monitor subject safety and assess efficacy. Each protocol, and any
subsequent amendments to the protocol, must be submitted to the FDA
as part of the IND. Further, each clinical trial must be reviewed
and approved by an IRB at or servicing each institution at which
the clinical trial will be conducted. An IRB is charged with
protecting the welfare and rights of trial participants, and
considers such items as whether the risks to individuals
participating in the clinical trials are minimized and are
reasonable in relation to anticipated benefits. The IRB also
approves the informed consent form that must be provided to each
clinical trial subject or his or her legal representative and must
monitor the clinical trial until completed. There are also
requirements governing the reporting of ongoing clinical trials and
completed clinical trial results to public registries.
A
sponsor who wishes to conduct a clinical trial outside the U.S.
may, but need not, obtain FDA authorization to conduct the clinical
trial under an IND. If a foreign clinical trial is not conducted
under an IND, the sponsor may submit data from the clinical trial
to the FDA in support of an NDA so long as the clinical trial is
conducted in compliance with cGCP, including review and approval by
an independent ethics committee and compliance with informed
consent principles, and FDA is able to validate the data from the
study through an onsite inspection if deemed
necessary.
Clinical Trials
Clinical
trials are generally conducted in three phases that may overlap,
known as Phase 1, Phase 2 and Phase 3 clinical trials.
●
Phase 1 clinical
trials generally involve a small number of healthy volunteers who
are initially exposed to a single dose and then multiple doses of
the product candidate. The primary purpose of these clinical trials
is to assess the metabolism, pharmacologic action, side effect
tolerability and safety of the drug.
●
Phase 2 clinical
trials typically involve studies in disease-affected patients to
determine the dose required to produce the desired benefits. At the
same time, safety and further pharmacokinetic and pharmacodynamic
information is collected, as well as identification of possible
adverse effects and safety risks and preliminary evaluation of
efficacy.
●
Phase 3 clinical
trials generally involve large numbers of patients at multiple
sites (typically from several hundred to several thousand
subjects), and are designed to provide the data necessary to
demonstrate the effectiveness of the product for its intended use,
its safety in use, and to establish the overall benefit/risk
relationship of the product and provide an adequate basis for
product approval and labeling. Phase 3 clinical trials may include
comparisons with placebo and/or other comparator treatments. The
duration of treatment is often extended for drugs intended for
chronic dosing to mimic the actual use of a product during
marketing.
Post-approval
trials, sometimes referred to as Phase 4 clinical trials, may be
conducted after initial marketing approval. These trials are used
to gain additional experience from the treatment of patients in the
intended therapeutic indication. In certain instances, FDA may
mandate the performance of Phase 4 clinical trials as a condition
of approval of an NDA.
Progress
reports detailing the results of the clinical trials must be
submitted at least annually to the FDA and written IND safety
reports must be submitted to the FDA and the investigators for
serious and unexpected suspected adverse events, increased rates of
serious suspected adverse events, or findings from other studies or
from animal or in vitro testing that suggests a significant risk
for human subjects. Phase 1, Phase 2 and Phase 3 clinical trials
may not be completed successfully within any specified period, if
at all. Success in one phase does not mean similar results will be
observed in subsequent phases. Each phase may involve multiple
studies. The FDA, the IRB, or the sponsor may suspend or terminate
a clinical trial at any time on various grounds, including a
finding that the research subjects or patients are being exposed to
an unacceptable health risk. Similarly, an IRB can suspend or
terminate approval of a clinical trial at its institution if the
clinical trial is not being conducted in accordance with the
IRB’s requirements or if the drug has been associated with
unexpected serious harm to patients. Additionally, some clinical
trials are overseen by an independent group of qualified experts
organized by the clinical trial sponsor, known as a data safety
monitoring board or committee. This group provides authorization
for whether or not a trial may move forward at designated check
points based on access to certain data from the trial, and may
suspend a clinical trial at any time on various grounds, including
a finding that the research subjects are being exposed to an
unacceptable health risk. Concurrent with clinical trials,
companies usually complete additional animal studies and must also
develop additional information about the chemistry and physical
characteristics of the drug as well as finalize a process for
manufacturing the product in commercial quantities in accordance
with cGMP requirements. The manufacturing process must be capable
of consistently producing quality batches of the drug candidate
and, among other things, we must develop methods for testing the
identity, strength, quality and purity of the final drug product.
Additionally, appropriate packaging must be selected and tested and
stability studies must be conducted to demonstrate that the drug
candidate does not undergo unacceptable deterioration over its
shelf life.
NDA and FDA Review Process
The
results of nonclinical studies and of the clinical trials, together
with other detailed information, including extensive manufacturing
information and information on the composition of the drug and
proposed labeling, are submitted to the FDA in the form of an NDA
requesting approval to market the drug for one or more specified
indications. The FDA reviews an NDA to determine, among other
things, whether a drug is safe and effective for its intended use
and whether the product is being manufactured in accordance with
cGMP to assure and preserve the product’s identity, strength,
quality and purity. FDA approval of an NDA must be obtained before
a drug may be offered for sale in the U.S.
In
addition, under the Pediatric Research Equity Act (
PREA
) certain NDAs or supplements to an
NDA must contain data to assess the safety and efficacy of the drug
for the claimed indications in all relevant pediatric
subpopulations and to support dosing and administration for each
pediatric subpopulation for which the product is safe and
effective. The FDA may grant deferrals for submission of pediatric
data or full or partial waivers. Under the Best Pharmaceuticals for
Children Act (
BPCA
) the FDA
may also issue a Written Request asking a sponsor to conduct
pediatric studies related to a particular active moiety; if the
sponsor agrees and meets certain requirements, the sponsor may be
eligible to receive additional marketing exclusivity for its drug
product containing such active moiety.
Under
the
Prescription Drug User
Fee Act (
PDUFA
), as
amended, each NDA must be accompanied by a user fee, unless subject
to a waiver. The FDA adjusts the PDUFA user fees on an annual
basis. According to the FDA’s fee schedule, effective through
September 30, 2019, the user fee for an application requiring
clinical data, such as an NDA, is approximately $2.6 million. PDUFA
also imposes an annual prescription drug program fee for human
drugs of approximately $0.3 million. Fee waivers or reductions are
available in certain circumstances, including a waiver of the
application fee for the first application filed by a small
business. Additionally, no user fees are assessed on NDAs for
products designated as orphan drugs, unless the product also
includes a non-orphan-designated indication.
The FDA
reviews all NDAs submitted before it accepts them for filing, and
may request additional information rather than accepting an NDA for
filing. The FDA must make a decision on accepting an NDA for filing
within 60 days of receipt. Once the submission is accepted for
filing, the FDA begins an in-depth review of the NDA. Under the
goals and policies agreed to by the FDA under PDUFA, the FDA aims
to complete its initial review of an NDA and respond to the
applicant within 10 months from the filing date for a standard NDA
and, and within six months from the filing date for a priority NDA.
The FDA does not always meet its PDUFA goal dates for standard and
priority NDAs, and the review process is often significantly
extended by FDA requests for additional information or
clarification.
After
the NDA submission is accepted for filing, the FDA reviews the NDA
to determine, among other things, whether the proposed product is
safe and effective for its intended use, and whether the product is
being manufactured in accordance with cGMP to assure and preserve
the product’s identity, strength, quality and purity. Before
approving an NDA, the FDA will generally conduct a pre-approval
inspection of the manufacturing facilities for the new product to
determine whether the facilities comply with cGMPs. The FDA will
not approve the product unless it determines that the manufacturing
processes and facilities are in compliance with cGMP requirements
and adequate to assure consistent production of the product within
required specifications. Before approving an NDA, the FDA may also
audit data from clinical trials to ensure compliance with GCP
requirements and integrity of the data submitted in the NDA.
Additionally, the FDA may refer applications for novel drug
products or drug products which present difficult questions of
safety or efficacy to an advisory committee, typically a panel that
includes clinicians and other experts, for review, evaluation and a
recommendation as to whether the application should be approved and
under what conditions. For example, the advisory committee may
recommend or the FDA may determine that a Risk Evaluation and
Mitigtion Strategy (
REMS
)
program is necessary to ensure safe use of the product. The FDA is
not bound by the recommendations of an advisory committee, but it
considers such recommendations carefully when making decisions. The
FDA will likely re-analyze the clinical trial data, which could
result in extensive discussions between the FDA and the applicant
during the review process. The review and evaluation process for an
NDA by the FDA is extensive and time consuming and may take longer
than originally planned to complete, and we may not receive a
timely approval, if at all.
After
the FDA evaluates an NDA, it may issue an approval letter or a
Complete Response Letter. An approval letter authorizes commercial
marketing of the drug with specific prescribing information for
specific indications. A Complete Response Letter indicates that the
review cycle of the application is complete and the application is
not ready for approval. A Complete Response Letter usually
describes all of the specific deficiencies in the NDA identified by
the FDA. The Complete Response Letter may require additional
clinical data and/or one or more additional pivotal Phase 3
clinical trials, and/or other significant and time-consuming
requirements related to clinical trials, non-clinical studies or
manufacturing. If a Complete Response Letter is issued, the
applicant may either resubmit the NDA, addressing all of the
deficiencies identified in the letter, or withdraw the application.
Even if such additional data and information are submitted, the FDA
may ultimately decide that the NDA does not satisfy the criteria
for approval. Data obtained from clinical trials are not always
conclusive, and the FDA may interpret data differently than we
interpret the same data.
There
is no assurance that the FDA will ultimately approve any of our
drug product candidates for marketing in the U.S., and we may
encounter significant difficulties or costs during the FDA review
process. If a product receives marketing approval, the approval may
be significantly limited to specific patient populations and
dosages or the indications for use may otherwise be limited, which
could restrict the commercial value of the product. Further, the
FDA typically requires that certain contraindications, warnings or
precautions be included in the product labeling, and may condition
the approval of the NDA on other changes to the proposed labeling,
development of adequate controls and specifications, or a
commitment to conduct post-marketing testing or clinical trials and
surveillance to monitor the effects of approved products. For
example, the FDA may require Phase 4 testing which may involve
clinical trials designed to further assess a drug’s safety
and/or efficacy and may require testing and surveillance programs
to monitor the safety of approved products that have been
commercialized. The FDA may also place other conditions on
approvals including the requirement for a REMS to assure the safe
use of the drug. If the FDA concludes a REMS is needed, the sponsor
of the NDA must submit a proposed REMS. The FDA will not approve
the NDA without an approved REMS, if the FDA determines that a REMS
is required. A REMS could include medication guides, physician
communication plans, or elements to assure safe use, such as
restricted distribution methods, patient registries and other risk
minimization tools. Any limitations on approval, marketing or use
for any of our products could restrict the commercial promotion,
distribution, prescription or dispensing of those products. Product
approvals may be withdrawn for non-compliance with regulatory
requirements or if problems occur following initial
marketing.
Orphan Drug Designation
Under
the Orphan Drug Act, the FDA may grant orphan designation to a drug
product intended to treat a “rare disease or
condition,” which is generally a disease or condition that
affects fewer than 200,000 individuals in the United States, or
more than 200,000 individuals in the United States, but for which
there is no reasonable expectation that the cost of developing and
making a drug product available in the United States for this type
of disease or condition will be recovered from sales of the
product. Orphan product designation must be requested before
submitting an NDA for the drug for the proposed rare disease or
condition. After the FDA grants orphan drug designation, the common
name of the therapeutic agent and its designated orphan use are
disclosed publicly by the FDA. Orphan product designation does not,
by itself, convey any advantage in or shorten the duration of the
regulatory review and approval process.
If a
product that has orphan designation subsequently receives the first
FDA approval for the disease or condition for which it has such
designation, the product is entitled to orphan product exclusivity,
which means that the FDA may not approve any other sponsors’
applications to market the same drug for the same indication for
seven years, except in limited circumstances, such as a showing of
clinical superiority to the product with orphan exclusivity. Orphan
exclusivity operates independently from other regulatory
exclusivities and other protection against generic competition,
including patents that we hold for our products. A sponsor of a
product application that has received an orphan drug designation
may also be granted tax incentives for clinical research undertaken
to support the application. In addition, the FDA may coordinate
with the sponsor on research study design for an orphan drug and
may exercise its discretion to grant marketing approval on the
basis of more limited product safety and efficacy data than would
ordinarily be required, based on the limited size of the applicable
patient population.
Competitors,
however, may receive approval of different products for the
indication for which the orphan product has exclusivity or obtain
approval for the same product but for a different indication than
that for which the orphan product has exclusivity. Orphan product
exclusivity also could block the approval of one of our products
for seven years if a competitor obtains approval of the same
product as defined by the FDA or if our product candidate is
determined to be contained within the competitor’s product
for the same indication or disease. If a drug designated as an
orphan product receives marketing approval for an indication
broader than what is designated, it may not be entitled to orphan
product exclusivity. The FDA can revoke a product’s orphan
drug exclusivity under certain circumstances, including when the
holder of the approved orphan drug application is unable to assure
the availability of sufficient quantities of the drug to meet
patient needs. Orphan drug status in the EU has similar, but not
identical, benefits.
Expedited Development and Review Programs
The FDA
has several programs that are intended to expedite or facilitate
the process for reviewing new drugs that are intended to treat a
serious or life-threatening condition and demonstrate the potential
to address unmet medical needs for the condition and provides
meaningful therapeutic benefit over existing treatments. Fast Track
designation and Breakthrough Therapy designation are two of these
programs and apply to the combination of the product and the
specific indication for which it is being studied. The sponsor of a
new drug or biologic may request the FDA to designate the drug as a
Fast Track product at any time during the development of the
product and may request the FDA to designate the drug as a
Breakthrough Therapy based on preliminary clinical evidence which
meet the criteria outlined in the FDA’s programs. Under the
Fast Track or Breakthrough Therapy expedited programs, the FDA may
review sections of the marketing application on a rolling basis
before the complete NDA is submitted if the sponsor provides a
schedule for the submission of the sections of the application, the
FDA agrees to accept sections of the application and determines
that the schedule is acceptable, and the sponsor pays any required
user fees upon submission of the first section of the
application.
Any
product submitted to the FDA for marketing, including under a Fast
Track or Breakthrough Therapy program, may be eligible for other
types of FDA programs intended to expedite development and review,
such as priority review and accelerated approval.
Any
product is eligible for priority review if it treats a serious
condition and offers a significant improvement in the safety and
effectiveness of treatment, diagnosis or prevention compared to
marketed products. Significant improvement may be shown by evidence
of increased effectiveness in the treatment of a condition,
elimination or substantial reduction of a treatment-limiting
product reaction, documented enhancement of patient compliance that
may lead to improvement in serious outcomes, and evidence of safety
and effectiveness in a new subpopulation. The FDA will attempt to
direct additional resources to the evaluation of an application for
a new drug designated for priority review in an effort to
facilitate the review, and to shorten the FDA’s goal for
taking action on a marketing application from ten months to six
months from the date of the NDA filing.
A
product may also be eligible for accelerated approval if the
product is intended to treat a serious or life-threatening illness
and provides meaningful therapeutic benefit over existing
treatments. Accelerated approval for a product means that it may be
approved on the basis of adequate and well-controlled clinical
trials establishing that the product has an effect on a surrogate
endpoint that is reasonably likely to predict a clinical benefit,
or on the basis of an effect on a clinical endpoint other than
survival or irreversible morbidity. As a condition of approval, the
FDA may require that a sponsor of a drug receiving accelerated
approval perform adequate and well-controlled post-marketing
clinical trials. If the FDA concludes that a drug shown to be
effective can be safely used only if distribution or use is
restricted, it will require such post-marketing restrictions, as it
deems necessary to assure safe use of the drug, such
as:
●
distribution
restricted to certain facilities or physicians with special
training or experience; or
●
distribution
conditioned on the performance of specified medical
procedures.
The
limitations imposed would be commensurate with the specific safety
concerns presented by the drug. In addition, the FDA currently
requires as a condition for accelerated approval pre-approval of
promotional materials, which could adversely impact the timing of
the commercial launch of the product.
Fast
Track designation, priority review, accelerated approval and
Breakthrough Therapy designation do not change the standards for
approval, but may expedite the development or approval
process.
Pediatric Trials
The
Food and Drug Administration Safety and Innovation Act
(
FDASIA
) which was signed
into law on July 9, 2012, amended the FDCA to require that a
sponsor who is planning to submit a marketing application for a
drug that includes a new active ingredient, new indication, new
dosage form, new dosing regimen or new route of administration
submit an initial Pediatric Study Plan (
PSP
) within sixty days of an
end-of-Phase 2 meeting or as may be agreed between the sponsor and
FDA. The initial PSP must include an outline of the pediatric study
or studies that the sponsor plans to conduct, including study
objectives and design, age groups, relevant endpoints and
statistical approach, or a justification for not including such
detailed information, and any request for a deferral of pediatric
assessments or a full or partial waiver of the requirement to
provide data from pediatric studies along with supporting
information. FDA and the sponsor must reach agreement on the PSP. A
sponsor can submit amendments to an agreed-upon initial PSP at any
time if changes to the pediatric plan need to be considered based
on data collected from non-clinical studies, early phase clinical
trials, and/or other clinical development programs. The FDA, if it
learns of new information, may also request that the sponsor amend
the initial PSP.
Post-marketing Requirements
Following
approval of a new product, a pharmaceutical company and the
approved product are subject to continuing regulation by the FDA,
including, among other things, monitoring and recordkeeping
activities, reporting to the applicable regulatory authorities of
adverse experiences with the product, providing the regulatory
authorities with updated safety and efficacy information, product
sampling and distribution requirements, and complying with
promotion and advertising requirements, which include, among
others, standards for direct-to-consumer advertising, restrictions
on promoting drugs for uses or in patient populations that are not
described in the drug’s approved labeling (known as
off-label use
), limitations
on industry-sponsored scientific and educational activities, and
requirements for promotional activities involving the Internet.
Although physicians may prescribe legally available drugs for
off-label uses, manufacturers may not market or promote such
off-label uses. Prescription drug promotional materials must be
submitted to the FDA in conjunction with their first use. Further,
if there are any modifications to the drug, including changes in
indications, labeling, or manufacturing processes or facilities,
the applicant may be required to submit and obtain FDA approval of
a new NDA or NDA supplement, which may require the applicant to
develop additional data or conduct additional non-clinical studies
and clinical trials. As with new NDAs, the review process is often
significantly extended by FDA requests for additional information
or clarification. Any distribution of prescription drug products
and pharmaceutical samples must comply with the U.S. Prescription
Drug Marketing Act (the
PDMA
) and the Drug Supply Chain
Security Act (
DSCSA
).
FDA
regulations also require that approved products be manufactured in
specific approved facilities and in accordance with cGMP. We rely,
and expect to continue to rely, on third parties for the production
of clinical and commercial quantities of our products in accordance
with cGMP regulations. NDA holders using contract manufacturers,
laboratories or packagers are responsible for the selection and
monitoring of qualified firms, and, in certain circumstances,
qualified suppliers to these firms. These manufacturers must comply
with cGMP regulations that require, among other things, quality
control and quality assurance as well as the corresponding
maintenance of records and documentation and the obligation to
investigate and correct any deviations from cGMP. Drug
manufacturers and other entities involved in the manufacture and
distribution of approved drugs are required to register their
establishments with the FDA and certain state agencies, and are
subject to periodic unannounced inspections by the FDA and certain
state agencies for compliance with cGMP and other laws.
Accordingly, manufacturers must continue to expend time, money, and
effort in the area of production and quality control to maintain
cGMP compliance. The discovery of violative conditions, including
failure to conform to cGMP, could result in enforcement actions
that interrupt the operation of any such facilities or the ability
to distribute products manufactured, processed or tested by them.
Discovery of problems with a product after approval may result in
restrictions on a product, manufacturer, or holder of an approved
NDA, including, among other things, recall or withdrawal of the
product from the market.
Discovery
of previously unknown problems with a product or the failure to
comply with applicable FDA requirements can have negative
consequences, including adverse publicity, administrative
enforcement, warning or untitled letters from the FDA, mandated
corrective advertising or communications with doctors, and civil
penalties or criminal prosecution, among others. Newly discovered
or developed safety or effectiveness data may require changes to a
product’s approved labeling, including the addition of new
warnings and contraindications, and also may require the
implementation of other risk management measures. Also, new
government requirements, including those resulting from new
legislation, may be established, or the FDA’s policies may
change, which could delay or prevent regulatory approval of our
products under development.
Other Regulatory Matters
Manufacturing,
sales, promotion and other activities following product approval
are also subject to regulation by numerous regulatory authorities
in addition to the FDA, including, in the U.S., the Department of
Health and Human Services; the Department of Justice; the DEA; the
Consumer Product Safety Commission; the Federal Trade Commission;
the Occupational Safety and Health Administration; the
Environmental Protection Agency; and state and local
governments.
In the
U.S., a drug product approved by the FDA may also be subject to
regulation under the Controlled Substances Act (
CSA
) as a controlled substance. The CSA
is administered by the DEA and establishes, among other things,
certain registration, security, recordkeeping, reporting, import,
export and other requirements for controlled substances. The CSA
classifies controlled substances into five schedules: Schedule I,
II, III, IV or V. FDA approved pharmaceutical products may be
listed in Schedule II, III, IV or V, with Schedule II substances
considered to present the highest potential for abuse or dependence
and Schedule V substances the lowest relative risk of abuse among
such substances. An approved drug product or drug candidate that
has not yet been approved by the FDA may be subject to scheduling
as a controlled substance under the CSA, depending on the
drug’s potential for abuse. For a drug approved by the FDA
and determined to require control under the CSA, the CSA requires
the DEA to issue an interim final order scheduling the drug within
90 days after the FDA approves the drug and the DEA receives a
scientific and medical evaluation and scheduling recommendation
from the Department of Health and Human Services, after it has been
completed by FDA. We do not expect FDA to recommend scheduling of
any of our product candidates as a controlled substance, if
approved.
In the
U.S., arrangements and interactions with health care professionals,
third-party payors, patients and others will expose us to broadly
applicable anti-fraud and abuse, anti-kickback, false claims and
other health care laws and regulations. These broadly applicable
laws and regulations may constrain the business or financial
arrangements or relationships through which we sell, market and
distribute our products, if and when we obtain marketing approval.
In the U.S., federal and state health care laws and regulations
that may affect our operations include:
●
The federal
Anti-Kickback Statute, which makes it illegal for any person,
including a company marketing a prescription drug (or a party
acting on its behalf) to knowingly and willfully solicit, receive,
offer, or pay any remuneration (including any kickback, bribe or
rebate), directly or indirectly, in cash or in kind, that is
intended to induce or reward the referral of an individual or
purchase, lease or order, or the arranging for or recommending the
purchase or order, of a particular item or service, for which
payment may be made in whole or in part under a federal healthcare
program, such as Medicare or Medicaid. This statute has been
interpreted to apply to arrangements between pharmaceutical
companies on one hand and prescribers, patients, purchasers and
formulary managers on the other. Liability under the Anti-Kickback
Statute may be established without proving actual knowledge of the
statute or specific intent to violate it. In addition, the
government may assert that a claim including items or services
resulting from a violation of the federal Anti-Kickback Statute
constitutes a false or fraudulent claim for purposes of the federal
civil False Claims Act. Although there are a number of statutory
exemptions and regulatory safe harbors to the federal Anti-Kickback
Statute protecting certain common business arrangements and
activities from prosecution or regulatory sanctions, the exemptions
and safe harbors are drawn narrowly. Practices that involve
remuneration to those who prescribe, purchase, or recommend
pharmaceutical and biological products, including certain
discounts, or engaging such individuals as consultants, advisors,
or speakers, may be subject to scrutiny if they do not fit squarely
within an exemption or safe harbor. Our practices may not in all
cases meet all of the criteria for safe harbor protection from
anti-kickback liability. Moreover, there are no safe harbors for
many common practices, such as educational and research grants,
charitable donations, product support and patient assistance.
Violations of this law are punishable by up to five years in
prison, criminal fines, damages, administrative civil money
penalties, and exclusion from participation in federal healthcare
programs.
●
The federal civil
False Claims Act, which prohibits anyone from, among other things,
knowingly presenting, or causing to be presented claims for payment
of government funds that are false or fraudulent, or knowingly
making, using, or causing to be made or used a false record or
statement material to a false or fraudulent claim or knowingly and
improperly avoiding, decreasing or concealing an obligation to pay
money to the federal government. Actions under the False Claims Act
may be brought by the federal government or as a qui tam action by
a private individual in the name of the government. Many
pharmaceutical manufacturers have been investigated and have
reached substantial financial settlements with the federal
government under the civil False Claims Act for a variety of
alleged improper activities. The government may deem companies to
have “caused” the submission of false or fraudulent
claims by, for example, providing inaccurate billing or coding
information to customers or promoting a product off-label. In
addition, our future activities relating to the reporting of prices
used to calculate Medicaid rebate information and other information
affecting federal, state, and third-party reimbursement for our
products, and the sale and marketing of our products, are subject
to scrutiny under this law. Penalties for a False Claims Act
violation may include three times the actual damages sustained by
the government, plus significant civil penalties for each separate
false or fraudulent claim, and the potential for exclusion from
participation in federal healthcare programs.
●
Numerous federal
and state laws, including state security breach notification laws,
state health information privacy laws, and federal and state
consumer protection laws, govern the collection, use, and
disclosure and protection of health-related and other personal
information. Failure to comply with these laws and regulations
could result in government enforcement actions and create
liability, private litigation, or adverse publicity. In addition,
we may obtain health information from third parties, such as
hospitals, healthcare professionals, and research institutions from
which we or our collaborators obtain patient health information,
that are subject to privacy and security requirements under the
federal Health Insurance Portability and Accountability Act of
1996, as amended by the Health Information Technology for Economic
and Clinical Health Act (
HIPAA
). Although we are not directly
subject to the HIPAA information privacy and security provisions,
other than with respect to providing certain employee benefits, we
could potentially be subject to criminal penalties if we or our
agents knowingly obtain or disclose individually identifiable
health information maintained by a HIPAA-covered entity in a manner
that is not authorized or permitted by HIPAA. In addition, HIPAA
does not replace federal, state, or other laws that may grant
individuals even greater privacy protections.
●
The HIPAA fraud
provisions, which impose criminal and civil liability for knowingly
and willfully executing a scheme to defraud any healthcare benefit
program, including private third-party payors, and prohibit
knowingly and willfully falsifying, concealing or covering up a
material fact or making any materially false, fictitious or
fraudulent statement or representation, or making or using any
false writing or document knowing the same to contain any
materially false fictitious or fraudulent statement or entry, in
connection with the delivery of or payment for healthcare benefits,
items or services.
●
The federal
Physician Payment Sunshine Act, being implemented as the Open
Payments Program, which requires manufacturers of drugs, devices,
biologics, and medical supplies for which payment is available
under Medicare, Medicaid or the Children’s Health Insurance
Program (with certain exceptions) to report annually to the Centers
for Medicare and Medicaid Services (
CMS
), the agency that administers the
Medicare and Medicaid programs, information related to direct or
indirect payments and other transfers of value to physicians and
teaching hospitals, as well as ownership and investment interests
held in the company by physicians and their immediate family
members. Beginning in 2022, applicable manufacturers also will be
required to report information regarding payments and transfers of
value provided to physician assistants, nurse practitioners,
clinical nurse specialists, certified nurse anesthetists, and
certified nurse-midwives.
●
Analogous state and
local laws and regulations, such as state anti-kickback and false
claims laws, which may apply to items or services reimbursed under
Medicaid and other state programs or, in several states, regardless
of the payer. We also may become subject to other state laws that
require pharmaceutical companies to comply with the pharmaceutical
industry’s voluntary compliance guidelines and the relevant
compliance guidance promulgated by the federal government or
otherwise restrict payments that may be made to healthcare
providers; state laws that restrict the ability of manufacturers to
offer co-pay support to patients for certain prescription drugs;
state laws that require drug manufacturers to report information
related to clinical trials, or information related to payments and
other transfers of value to physicians and other healthcare
providers or marketing expenditures; state laws and local
ordinances that require identification or licensing of sales
representatives; and state laws governing the privacy and security
of health information in certain circumstances, many of which
differ from each other in significant ways and often are not
preempted by HIPAA, thus complicating compliance
efforts.Substantial resources are necessary to ensure that our
business arrangements and interactions with health care
professionals, third party payors, patients and others comply with
applicable health care laws and regulations. Although compliance
programs can mitigate the risk of investigation and prosecution for
violations of these laws, the risks cannot be entirely eliminated.
It is possible that governmental authorities will conclude that our
business practices do not comply with current or future statutes,
regulations or case law, and if we are found to be in violation of
any of these laws or any other governmental regulations, we may be
subject to significant civil, criminal and administrative
penalties, imprisonment, damages, fines, exclusion from government
funded health care programs such as Medicare and Medicaid, or the
curtailment or restructuring of our operations. Any action against
us for violation of these laws or regulations, even if we
successfully defend against it, could cause us to incur significant
legal expenses and divert our management’s attention from the
operation of our business.
Numerous
other laws may apply to our products. Pricing and rebate programs
must comply with the Medicaid rebate requirements of the U.S.
Omnibus Budget Reconciliation Act of 1990 and more recent
requirements in the Patient Protection and Affordable Care Act, as
amended by the Health Care and Education Reconciliation Act of
2010, collectively referred to herein as ACA. If products are made
available to authorized users of the Federal Supply Schedule of the
General Services Administration, additional laws and requirements
apply. Products must meet applicable child-resistant packaging
requirements under the U.S. Poison Prevention Packaging Act.
Manufacturing, sales, promotion and other activities are also
potentially subject to federal and state consumer protection and
unfair competition laws.
The
handling of any controlled substances must comply with the U.S.
Controlled Substances Act and Controlled Substances Import and
Export Act.
The
distribution of pharmaceutical products is subject to additional
requirements and regulations, including extensive record- keeping,
licensing, storage and security requirements intended to prevent
the unauthorized sale of pharmaceutical products. The failure to
comply with any of these laws or regulatory requirements subjects
firms to possible legal or regulatory action. Depending on the
circumstances, failure to meet applicable regulatory requirements
can result in criminal prosecution, fines or other penalties,
injunctions, recall or seizure of products, total or partial
suspension of production, denial or withdrawal of product
approvals, or refusal to allow a firm to enter into supply
contracts, including government contracts. Any action against us
for violation of these laws, even if we successfully defend against
it, could cause us to incur significant legal expenses and divert
our management’s attention from the operation of our
business. Prohibitions or restrictions on sales or withdrawal of
future products marketed by us could materially affect our business
in an adverse way.
Changes
in statutes, regulations or the interpretation of existing laws or
regulations could impact our business in the future by requiring,
for example: (i) changes to our manufacturing arrangements; (ii)
additions or modifications to product labeling; (iii) the recall or
discontinuation of our products; or (iv) additional record-keeping
requirements. If any such changes were to be imposed, they could
adversely affect the operation of our business.
European Union Drug Development
We plan
to develop and commercialize our product candidates in the EU,
either alone or with a collaborator. As in the U.S., in the EU, our
future products also will be subject to extensive regulatory
requirements. As in the U.S., medicinal products can only be
marketed if a Marketing Authorization (
MA
) from the competent regulatory
authorities in the EU has been obtained.
Similar
to the U.S., the various phases of nonclinical and clinical
research in the EU are subject to significant regulatory controls.
Although the EU Clinical Trials Directive 2001/20/EC has sought to
harmonize the EU clinical trials regulatory framework, setting out
common rules for the control and authorization of clinical trials
in the EU, the EU Member States have transposed and applied the
provisions of the Directive in a manner that is often not uniform.
This has led to variations in the rules governing the conduct of
clinical trials in the individual EU Member States. The EU
legislator has, therefore, adopted Regulation (EU) No 536/2014, or
the EU Clinical Trials Regulation. The new EU Clinical Trials
Regulation, which will replace the EU Clinical Trials Directive,
introduces a complete overhaul of the existing regulation of
clinical trials for medicinal products in the EU, including a new
coordinated procedure for authorization of clinical trials that is
reminiscent of the mutual recognition procedure for marketing
authorization of medicinal products, and increased obligations on
sponsors to publish clinical trial results. The Clinical Trials
Regulation is expected to start to apply in late-2019 or in
2020.
Clinical
trials in the EU must currently be conducted in accordance with the
requirements of the EU Clinical Trials Directive and applicable
good clinical practice standards, as implemented into national
legislation by EU Member States. Under the current regime, before a
clinical trial can be initiated it must be approved in each EU
Member State where there is a site at which the trial is to be
conducted by two distinct bodies: the National Competent Authority,
or NCA, and one or more Ethics Committees (
ECs
). Under the current regime all
suspected unexpected serious adverse reactions to the investigated
drug that occur during the clinical trial have to be reported to
the NCA and ECs of the Member State where they
occurred.
In the
EU, pediatric data or an approved Pediatric Investigation Plan
(
PIP
) or waiver, is
required to have been approved by the European Medicines Agency
(
EMA
) prior to submission
of a MA application to the EMA or the competent authorities of the
EU Member States. In most EU countries, we are also required to
have an approved PIP before we can begin enrolling pediatric
patients in a clinical trial.
European Union Drug Review and Approval and Post-marketing
Requirements
In the
European Economic Area (
EEA
) (which is comprised of 28 Member
States of the EU plus Norway, Iceland and Liechtenstein), medicinal
products can only be commercialized after a related MA has been
granted. A MA for medicinal products can be obtained through
several different procedures. These are through a centralized,
mutual recognition procedure, decentralized procedure, or national
procedure (single EU Member State). The centralized procedure
allows a company to submit a single application to the EMA. If a
related positive opinion is provided by the EMA, the European
Commission will grant a centralized MA that is valid in all EU
Member States and three of the four European Free Trade
Associations (
EFTA
)
countries (Iceland, Liechtenstein and Norway).
The
Centralized Procedure is mandatory for certain types of products,
such as biotechnology medicinal products, orphan medicinal
products, and medicinal products containing a new active substance
indicated for the treatment of AIDS, cancer, neurodegenerative
disorders, diabetes, auto-immune and viral diseases. The
Centralized Procedure is optional for products containing a new
active substance that is not yet authorized in the EEA, or for
products that constitute a significant therapeutic, scientific or
technical innovation or for which grant of centralized marketing
authorization is in the interest of patients in the
EU.
The
decentralized authorization procedure permits companies to file
identical applications for authorization to several EU Member
States simultaneously for a medicinal product that has not yet been
authorized in any EU Member State. The competent authorities of a
single EU Member State, the reference member state, is appointed to
review the application and provide an assessment report. The
competent authorities of the other EU Member States, the concerned
member states, are subsequently required to grant marketing
authorization for their territories on the basis of this
assessment. The only exception to this is where an EU Member State
considers that there are concerns of potential serious risk to
public health related to authorization of the product. In these
circumstances, the matter is submitted to the Heads of Medicines
Agencies (CMDh) for review. The mutual recognition procedure allows
companies that have a medicinal product already authorized in one
EU Member State to apply for this authorization to be recognized by
the competent authorities in other EU Member States.
The
maximum timeframe for the evaluation of a marketing authorization
application in the EU is 210 days, not including clock stops during
which applicants respond to questions from the competent authority.
The initial marketing authorization granted in the EU is valid for
five years. The authorization may be renewed and valid for an
unlimited period unless the national competent authority or the
European Commission decides on justified grounds to proceed with
one additional five-year renewal period. The renewal of a marketing
authorization is subject to a re-evaluation of the risk-benefit
balance of the product by the national competent authorities or the
EMA.
The
holder of an EU MA for a medicinal product must also comply with
the EU’s pharmacovigilance legislation. This includes
requirements to conduct pharmacovigilance, or the assessment and
monitoring of the safety of medicinal products.
Various
requirements apply to the manufacturing and placing on the EU
market of medicinal products. Manufacture of medicinal products in
the EU requires a manufacturing authorization. The manufacturing
authorization holder must comply with various requirements set out
in the applicable EU laws, regulations and guidance. These
requirements include compliance with EU cGMP standards when
manufacturing medicinal products and APIs, including the
manufacture of APIs outside of the EU with the intention to import
the APIs into the EU. Similarly, the distribution of medicinal
products into and within the EU is subject to compliance with the
applicable EU laws, regulations and guidelines, including the
requirement to hold appropriate authorizations for distribution
granted by the competent authorities of the EU Member States. MA
holders may be subject to civil, criminal or administrative
sanctions, including suspension of manufacturing authorization, in
case of non-compliance with the EU or EU Member States’
requirements applicable to the manufacturing of medicinal
products.
In the
EU, the advertising and promotion of medicinal products are subject
to EU Member States’ laws governing promotion of medicinal
products, interactions with physicians, misleading and comparative
advertising and unfair commercial practices. Breaches of the rules
governing the promotion of medicinal products in the EU could be
penalized by administrative measures, fines and imprisonment. These
laws may further limit or restrict the advertising and promotion of
medicinal products to the general public and may also impose
limitations on promotional activities with healthcare
professionals.
European Union New Chemical Entity Exclusivity
In the
EU, innovative medicinal products that are subject to marketing
authorization on the basis of a full dossier and do not fall within
the scope of the concept of global marketing authorization, which
prevents the same marketing authorization holder or members of the
same group from obtaining separate data and market exclusivity
periods for medicinal products that contain the same active
substance, qualify for eight years of data exclusivity upon
marketing authorization and an additional two years of market
exclusivity. This data exclusivity, if granted, prevents regulatory
authorities in the EU from referencing the innovator’s data
to assess a generic application or biosimilar application for eight
years from the date of authorization of the innovative product,
after which a generic or biosimilar marketing authorization
application can be submitted, and the innovator’s data may be
referenced. However, the generic product or biosimilar products
cannot be marketed in the EU for a further two years thereafter.
The overall ten-year period may be extended for a further year to a
maximum of 11 years if, during the first eight years of those ten
years, the marketing authorization holder obtains an authorization
for one or more new therapeutic indications which, during the
scientific evaluation prior to their authorization, are held to
bring a significant clinical benefit in comparison with existing
therapies.
European Union Orphan Designation and Exclusivity
In the
EU, orphan drug designations are granted by the European Commission
based on a scientific opinion by the EMA’s Committee for
Orphan Medicinal Products in relation to medicinal products that
are intended for the diagnosis, prevention or treatment of
life-threatening or chronically debilitating conditions affecting
not more than 5 in 10,000 persons in the European Union and in
relation to which no satisfactory method of diagnosis, prevention,
or treatment has been authorized (or the product would be a
significant benefit to those affected). Additionally, designation
is granted for products intended for the diagnosis, prevention, or
treatment of a life-threatening, seriously debilitating or serious
and chronic condition and when, without incentives, it is unlikely
that sales of the drug in the European Union would be sufficient to
justify the necessary investment in developing the medicinal
product.
Orphan
medicinal products are entitled to ten years of exclusivity in all
EU Member States and a range of other benefits during the
development and regulatory review process. However, marketing
authorization may be granted to a similar medicinal product with
the same orphan indication during the ten-year period with the
consent of the marketing authorization holder for the original
orphan medicinal product or if the manufacturer of the original
orphan medicinal product is unable to supply sufficient quantities
of the product. Marketing authorization may also be granted to a
similar medicinal product with the same orphan indication if the
similar product is deemed safer, more effective or otherwise
clinically superior to the original orphan medicinal product. The
period of market exclusivity may, in addition, be reduced to six
years if it can be demonstrated on the basis of available evidence
that the original orphan medicinal product is sufficiently
profitable not to justify maintenance of market
exclusivity.
In
addition, grant of orphan designation by the European Commission
also entitles the holder of this designation to financial
incentives such as reduction of fees or fee waivers. Orphan drug
designation must be requested before submitting an application for
marketing authorization. Orphan drug designation does not, in
itself, convey any advantage in, or shorten the duration of, the
regulatory review and authorization process.
Rest of the World Regulation
For
other countries outside of the U.S. and the EU, such as countries
in Eastern Europe, Latin America or Asia, the requirements
governing the conduct of clinical trials, product licensing,
pricing and reimbursement vary from countr- to-country. In all
cases, the clinical trials must be conducted in accordance with
cGCP requirements and the applicable regulatory requirements and
the ethical principles that have their origin in the Declaration of
Helsinki.
Approval
by a regulatory authority in one jurisdiction does not guarantee
approval by comparable regulatory authorities in other
jurisdictions. If we fail to comply with applicable foreign
regulatory requirements applicable to a given country, we may not
be able to obtain regulatory approval for our product candidates in
such country if we choose to seek such approval, or we may be
subject to, among other things, fines, suspension or withdrawal of
regulatory approvals, product recalls, seizure of products,
operating restrictions and criminal prosecution.
Coverage and Reimbursement
U.S. Healthcare Reform
The
containment of healthcare costs has become a priority of federal
and state governments, and the prices of drugs have been a focus in
this effort. Changes in government legislation or regulation and
changes in private third-party payors’ policies toward
reimbursement for our products, if successfully developed and
approved, may reduce reimbursement of our products’ costs to
physicians, pharmacies, patients, and distributors. The U.S.
government, state legislatures and foreign governments have shown
significant interest in implementing cost-containment programs,
including price controls, restrictions on reimbursement and
requirements for substitution of generic products. Adoption of
price controls and cost-containment measures, and adoption of more
restrictive policies in jurisdictions with existing controls and
measures, could limit our net revenue and results for products, if
any, we commercialize in the future.
The
pricing and reimbursement environment for our products may change
in the future and become more challenging due to, among other
reasons, policies advanced by the Trump Administration, federal
agencies, new healthcare legislation passed by Congress or fiscal
challenges faced by all levels of government health administration
authorities. The American Recovery and Reinvestment Act of 2009
(
ARRA
), for example,
allocated new federal funding to compare the effectiveness of
different treatments for the same condition. The plan for the
research was published in 2012 by the Department of Health and
Human Services, the Agency for Healthcare Research and Quality and
the National Institutes for Health, and periodic reports on the
status of the research and related expenditures are made to
Congress. Although ARRA does not mandate the use of the results of
comparative effectiveness studies for reimbursement purposes, it is
not clear what effect, if any, the research will have on the sales
of any products for which we receive marketing approval or on the
reimbursement policies of public and private payors. It is possible
that comparative effectiveness research demonstrating benefits in a
competitor’s product could adversely affect the sales of any
product for which we receive marketing approval. For example, if
third-party payors find our products not to be cost-effective
compared to other available therapies, they may not cover our
products after approval as a benefit under their plans or, if they
do, the level of payment may not be sufficient to allow us to sell
our products on a profitable basis.
The
Affordable Care Act (
ACA
)
is a sweeping measure intended to expand healthcare coverage within
the U.S., primarily through the imposition of health insurance
mandates on employers and individuals, the provision of subsidies
to eligible individuals enrolled in plans offered on the health
insurance exchanges, and the expansion of the Medicaid program.
This law has substantially changed the way healthcare is financed
by both governmental and private insurers and significantly impacts
the pharmaceutical industry. Changes that may affect our business
include those governing enrollment in federal healthcare programs,
reimbursement changes, benefits for patients within a coverage gap
in the Medicare Part D prescription drug program (commonly known as
the
donut hole
), rules
regarding prescription drug benefits under the health insurance
exchanges, changes to the Medicaid Drug Rebate program, expansion
of the Public Health Service’s 340B drug pricing program, or
340B program, fraud and abuse and enforcement. These changes have
impacted previously existing government healthcare programs and
have resulted in the development of new programs, including
Medicare payment for performance initiatives and improvements to
the physician quality reporting system and feedback
program.
One of
the goals of ACA was to expand coverage for the uninsured while at
the same time containing overall healthcare costs. With regard to
pharmaceutical products, among other things, the ACA expanded and
increased industry rebates for drugs covered under Medicaid. The
ACA also imposed new reporting requirements on drug manufacturers
for payments made to physicians and teaching hospitals, as well as
ownership and investment interests held by physicians and their
immediate family members. Failure to submit required information
may result in civil monetary penalties of $1,000 to $10,000 for
each payment or ownership interest that is not timely, accurately,
or completely reported (annual maximum of $150,000), and $10,000 to
$100,000 for each knowing failure to report (annual maximum of $1
million). The reporting requirements apply only to manufacturers of
products for which reimbursement is available under Medicare,
Medicaid, or the Children’s Health Insurance
Program.
Some
states have elected not to expand their Medicaid programs by
raising the income limit to 133% of the federal poverty level, as
is permitted under the ACA. For each state that does not choose to
expand its Medicaid program, there may be fewer insured patients
overall, which could impact sales of our approved products that are
approved and that we successfully commercialize, and our business
and financial condition. Where Medicaid patients receive insurance
coverage under any of the new options made available through the
ACA, the possibility exists that manufacturers may be required to
pay Medicaid rebates on drugs used under these circumstances, a
decision that could impact manufacturer revenues. In addition,
there have been delays in the implementation of key provisions of
the ACA, including the excise tax on generous employer-based health
insurance plans. The implications of these delays for business and
financial condition, if any, are not yet clear.
Moreover,
additional legislative changes to or regulatory changes under the
ACA remain possible. The Trump Administration has identified repeal
and replacement of the ACA as one of its priorities, and has
altered the implementation of the ACA and related laws. In this
regard, the U.S. Tax Cuts and Jobs Act of 2017, signed into law in
December 2017, includes a provision repealing, effective January 1,
2019, the tax-based shared responsibility payment imposed by the
ACA on certain individuals who fail to maintain qualifying health
coverage for all or part of a year that is commonly referred to as
the “individual mandate.” The nature and extent of any
additional legislative changes to the ACA are uncertain at this
time. In addition, in December 2018, a federal district court
judge, in a challenge brought by a number of state attorneys
general, found the ACA unconstitutional in its entirety because
once Congress repealed the “individual mandate”
provision as part of tax reform legislation enacted in late 2017,
there was no longer a basis to rely on Congressional taxing
authority to support enactment of the law. The court reasoned that
the “individual mandate” was not severable from the
rest of the ACA and found the entire Act was an unconstitutional
exercise of Congressional authority. While the Trump administration
and CMS have both stated that the ruling will have no immediate
effect, it is unclear how this decision, subsequent appeals, if
any, and other efforts to repeal and replace the ACA will impact
the ACA and our business. We expect that the ACA, as currently
enacted or as it may be amended, and other healthcare reform
measures that may be adopted in the future, could have a material
adverse effect on our industry generally and on our ability to
commercialize our product candidates, if approved.
Other
legislative changes relating to reimbursement have been adopted in
the U.S. since the ACA was enacted. For example, beginning April 1,
2013, Medicare payments for all items and services under Part A and
B, including drugs and biologicals, and most payments to plans
under Medicare Part D were reduced by 2% under the sequestration
(i.e., automatic spending reductions) required by the Budget
Control Act of 2011, or BCA, as amended by the American Taxpayer
Relief Act of 2012. The BCA requires sequestration for most federal
programs, excluding Medicaid, Social Security, and certain other
programs. Subsequent legislation extended the 2% reduction to 2027
unless additional Congressional action is taken. As long as these
cuts remain in effect, they could adversely impact payment for any
products we may commercialize in the future. We expect that
additional federal healthcare reform measures will be adopted in
the future, any of which could limit the amounts that federal and
state governments will pay for healthcare products and services,
and in turn could significantly reduce the projected value of
certain development projects and reduce our
profitability.
Pharmaceutical Pricing and Reimbursement
If we
are successful in developing and gaining regulatory approval for
our product candidates, sales of our products will be dependent on
the availability and extent of coverage and reimbursement from
third-party payors, which are increasingly reducing reimbursements
for medical products and services. Decreases in third-party
reimbursement for our products or a decision by a third-party payor
not to cover a product for which we received marketing approval
could reduce physician usage of our products and have a material
adverse effect on our sales, results of operations and financial
condition. In the United States, healthcare providers are
reimbursed for covered services and products they use through
Medicare, Medicaid, and other government healthcare programs, as
well as through commercial insurance and managed healthcare
organizations. In the U.S. no uniform policy of coverage and
reimbursement for drug products exists. Accordingly, decisions
regarding the extent of coverage and amount of reimbursement to be
provided for any of our products will be made on a payor-by-payor
basis. As a result, the coverage determination process is often a
time-consuming and costly process that will require us to provide
scientific and clinical support for the use of our products to each
payor separately, with no assurance that coverage and adequate
reimbursement will be obtained.
If we
are successful in developing and gaining regulatory approval for
our product candidates, we may participate in the Medicaid Drug
Rebate Program. The Medicaid Drug Rebate Program and other
governmental programs impose obligations to report pricing figures
to the federal government, meaning that we would be subject to
these price reporting and other compliance obligations. Other
programs impose limits on the price we will be permitted to charge
certain entities for our products, if any, for which we receive
regulatory approval. Statutory and regulatory changes or other
agency action regarding these programs and their requirements could
negatively affect the coverage and reimbursement by these programs
of products for which we receive regulatory approval and could
negatively impact our results of operations.
The
Medicaid Drug Rebate Program was established by the Omnibus Budget
Reconciliation Act of 1990 and amended by the Veterans Health Care
Act of 1992 as well as subsequent legislation. If we participate in
the Medicaid Drug Rebate Program, we will be required to pay a
rebate to each state Medicaid program for our covered outpatient
drugs that are dispensed to Medicaid beneficiaries and paid for by
a state Medicaid program as a condition of having federal funds
being made available to the state for our drugs under Medicaid and
Medicare Part B. Those rebates will be based on pricing data
reported by us on a monthly and quarterly basis to Centers for
Medicare and Medicaid Services (
CMS
),
previously
known as the Health Care Financing Administration
(
HCFA
)
the federal agency that administers the Medicare and Medicaid
programs. These data will include the average manufacturer price
and, in the case of innovator products, the best price for each
drug, which, in general, represents the lowest price available from
the manufacturer to any entity in the U.S. in any pricing
structure, calculated to include all sales and associated rebates,
discounts, and other price concessions. The ACA made significant
changes to the Medicaid Drug Rebate program, and CMS issued a final
regulation, which became effective on April 1, 2016, to implement
the changes to the Medicaid Drug Rebate Program under the ACA. Our
failure to comply with these price reporting and rebate payment
options could negatively impact our financial results.
Federal
law requires that any company that participates in the Medicaid
Drug Rebate Program also participate in the Public Health
Service’s 340B drug pricing discount program in order for
federal funds to be available for the manufacturer’s drugs
under Medicaid and Medicare Part B. The 340B drug pricing program,
which is administered by the Health Resources and Services
Administration, or HRSA, requires participating manufacturers to
agree to charge statutorily defined covered entities no more than
the 340B “ceiling price” for the manufacturer’s
covered outpatient drugs. These 340B covered entities include a
variety of community health clinics and other entities that receive
health services grants from the Public Health Service, as well as
hospitals that serve a disproportionate share of low-income
patients. The ACA expanded the list of covered entities to include
certain free-standing cancer hospitals, critical access hospitals,
rural referral centers and sole community hospitals, but exempts
“orphan drugs” from the ceiling price requirements for
these covered entities. The 340B ceiling price is calculated using
a statutory formula, which is based on the average manufacturer
price and rebate amount for the covered outpatient drug as
calculated under the Medicaid Drug Rebate Program, and in general,
products subject to Medicaid price reporting and rebate liability
are also subject to the 340B ceiling price calculation and discount
requirement. Changes to the definition of average manufacturer
price and the Medicaid Drug Rebate amount under the ACA or
otherwise also could affect our 340B ceiling price calculations and
negatively impact our results of operations.
HRSA
issued a final regulation regarding the calculation of the 340B
ceiling price and the imposition of civil monetary penalties on
manufacturers that knowingly and intentionally overcharge covered
entities, which became effective on January 1, 2019. It is
currently unclear how HRSA will apply its enforcement authority
under the new regulation. HRSA also is implementing a ceiling price
reporting requirement related to the 340B program during the first
quarter of 2019, pursuant to which we are required to report our
340B ceiling prices to HRSA on a quarterly basis. Implementation of
the civil monetary penalties regulation and the issuance of any
other final regulations and guidance could affect our obligations
under the 340B program in ways we cannot anticipate. In addition,
legislation may be introduced that, if passed, would further expand
the 340B program to additional covered entities or would require
participating manufacturers to agree to provide 340B discounted
pricing on drugs used in the inpatient setting.
Federal
law also requires that a company that participates in the Medicaid
Drug Rebate Program report average sales price information each
quarter to CMS for certain categories of drugs that are paid under
the Medicare Part B program. Manufacturers calculate the average
sales price based on a statutorily defined formula as well as
regulations and interpretations of the statute by CMS. CMS uses
these submissions to determine payment rates for drugs under
Medicare Part B. Statutory or regulatory changes or CMS guidance
could affect the average sales price calculations for our approved
products that we successfully commercialize and the resulting
Medicare payment rate, and could negatively impact our results of
operations. Also, the Medicare Part B drug payment methodology is
subject to change based on potential demonstration projects
undertaken by CMS or potential legislation enacted by
Congress.
Pricing
and rebate calculations vary among products and programs. The
calculations are complex and are often subject to interpretation by
us, governmental or regulatory agencies and the courts. The
Medicaid rebate amount will be computed each quarter based on our
submission to CMS of our current average manufacturer prices and
best prices for the quarter. If we participate in the Medicaid Drug
Rebate Program and become aware that our reporting for a prior
quarter was incorrect, or has changed as a result of recalculation
of the pricing data, we are obligated to resubmit the corrected
data for a period not to exceed 12 quarters from the quarter in
which the data originally were due. Such restatements and
recalculations would increase our costs for complying with the laws
and regulations governing the Medicaid Drug Rebate Program. Any
corrections to our rebate calculations could result in an overage
or underage in our rebate liability for past quarters, depending on
the nature of the correction. Price recalculations also may affect
the ceiling price at which we are required to offer our products to
certain covered entities, such as safety-net providers, under the
340B drug pricing program.
If we
participate in the Medicaid Drug Rebate Program and consequently
the 340B drug pricing program, we could be held liable for errors
associated with our submission of pricing data. Civil monetary
penalties can be applied if we are found to have made a
misrepresentation in the reporting of our average sales price, or
if we are found to have charged 340B covered entities more than the
statutorily mandated ceiling price In addition to retroactive
rebates and the potential for 340B program refunds, if we are found
to have knowingly submitted false average manufacturer price or
best price information to the government, we may be liable for
significant civil monetary penalties per item of false information.
Our failure to submit monthly/quarterly average manufacturer price
and best price data on a timely basis could result in a significant
civil monetary penalty per day for each day the information is late
beyond the due date. Such failure also could be grounds for CMS to
terminate our Medicaid drug rebate agreement, pursuant to which we
will participate in the Medicaid program. In the event that CMS
terminates our rebate agreement, no federal payments would be
available under Medicaid or Medicare Part B for our covered
outpatient drugs.
CMS and
the Office of the Inspector General have pursued manufacturers that
were alleged to have failed to report these data to the government
in a timely manner. Governmental agencies may also make changes in
program interpretations, requirements or conditions of
participation, some of which may have implications for amounts
previously estimated or paid. If we participate in the Medicaid
Drug Rebate Program and consequently the 340B drug pricing program,
we cannot assure you that our submissions will not be found by CMS
to be incomplete or incorrect.
In
order to be eligible to have our products paid for with federal
funds under the Medicaid and Medicare Part B programs and purchased
by the Department of Veterans Affairs (
VA
), Department of Defense
(
DoD
), Public Health
Service, and Coast Guard (the
Big
Four agencies
) and certain federal grantees, we will be
required to participate in the VA Federal Supply Schedule
(
FSS
) pricing program,
established under Section 603 of the Veterans Health Care Act of
1992. Under this program, we will be obligated to make our
“covered” drugs (
i.e.
, innovator drugs and biologics)
available for procurement on an FSS contract and charge a price to
the Big Four agencies that is no higher than the Federal Ceiling
Price (
FCP
), which is a
price calculated pursuant to a statutory formula. The FCP is
derived from a calculated price point called the “non-federal
average manufacturer price” (
Non-FAMP
), which we will be required to
calculate and report to the VA on a quarterly and annual basis.
Pursuant to applicable law, knowing provision of false information
in connection with a Non-FAMP filing can subject a manufacturer to
significant civil monetary penalties for each item of false
information. The FSS contract also contains extensive disclosure
and certification requirements. In addition, Section 703 of the
National Defense Authorization Act for FY 2008, will require us to
pay quarterly rebates to DoD on utilization of covered drugs that
are dispensed through DoD’s Tricare network pharmacies to
Tricare beneficiaries. The rebates are calculated as the difference
between the annual Non-FAMP and FCP for the calendar year that the
product was dispensed. If we overcharge the government in
connection with the FSS contract or Tricare Retail Pharmacy Rebate
Program, whether due to a misstated FCP or otherwise, we will be
required to refund the difference to the government. Failure to
make necessary disclosures and/or to identify contract overcharges
can result in allegations against us under the False Claims Act and
other laws and regulations. Unexpected refunds to the government,
and any response to government investigation or enforcement action,
would be expensive and time-consuming, and could have a material
adverse effect on our business, financial condition, results of
operations and growth prospects.
In
addition, in many foreign countries, the proposed pricing for a
drug must be approved before it may be lawfully marketed. The
requirements governing drug pricing vary widely from country to
country. For example, the EU Member States have the power to
restrict the range of medicinal products for which their national
health insurance systems provide reimbursement and to control the
prices of medicinal products for human use. An EU Member State may
approve a specific price for the medicinal product or it may
instead adopt a system of direct or indirect controls on the
profitability of the company placing the medicinal product on the
market. There can be no assurance that any country that has price
controls or reimbursement limitations for pharmaceutical products
will allow favorable reimbursement and pricing arrangements for any
of our products, if approved. Historically, products launched in
the EU do not follow price structures of the United States, and
generally prices tend to be significantly lower.
In
various EU Member States, we expect to be subject to continuous
cost-cutting measures, such as lower maximum prices, lower or lack
of reimbursement coverage and incentives to use cheaper, usually
generic, products as an alternative. Health Technology Assessment,
or HTA, of medicinal products is becoming an increasingly common
part of the pricing and reimbursement procedures in some EU Member
States, including countries representing major markets. The HTA
process, which is governed by the national laws of these countries,
is the procedure according to which the assessment of the public
health impact, therapeutic impact and the economic and societal
impact of use of a given medicinal product in the national
healthcare systems of the individual country is conducted. The
outcome of HTA regarding specific medicinal products will often
influence the pricing and reimbursement status granted to these
medicinal products by the competent authorities of individual EU
Member States. On January 31, 2018, the European Commission adopted
a proposal for a regulation on health technologies assessment. This
legislative proposal is intended to boost cooperation among EU
Member States in assessing health technologies, including new
medicinal products, and providing the basis for cooperation at the
EU level for joint clinical assessments in these areas. The
proposal provides that EU Member States will be able to use common
HTA tools, methodologies, and procedures across the EU, working
together in four main areas, including joint clinical assessment of
the innovative health technologies with the most potential impact
for patients, joint scientific consultations whereby developers can
seek advice from HTA authorities, identification of emerging health
technologies to identify promising technologies early, and
continuing voluntary cooperation in other areas. Individual EU
Member States will continue to be responsible for assessing
non-clinical (e.g., economic, social, ethical) aspects of health
technology, and making decisions on pricing and reimbursement. The
European Commission has stated that the role of the draft HTA
regulation is not to influence pricing and reimbursement decisions
in the individual EU Member States. However, this consequence
cannot be excluded.
Stem Cell Technology - United States
With
respect to our stem cell research and development in the U.S., the
U.S. government has established requirements and procedures
relating to the isolation and derivation of certain stem cell lines
and the availability of federal funds for research and development
programs involving those lines. All of the stem cell lines that we
are using were either isolated under procedures that meet U.S.
government requirements and are approved for funding from the U.S.
government, or were isolated under procedures that meet U.S.
government requirements.
All
procedures we use to obtain clinical samples, and the procedures we
use to isolate hESCs, are consistent with the informed consent and
ethical guidelines promulgated by the U.S. National Academy of
Science, the International Society of Stem Cell Research
(
ISSCR
), or the NIH. These
procedures and documentation have been reviewed by an external Stem
Cell Research Oversight Committee, and all cell lines we use have
been approved under one or more of these guidelines.
The
U.S. government and its agencies on July 7, 2009 published
guidelines for the ethical derivation of hESCs required for
receiving federal funding for hESC research. Should we seek further
NIH funding for our stem cell research and development, our request
would involve the use of hESC lines that meet the NIH guidelines
for NIH funding. In the U.S., the President’s Council on
Bioethics monitors stem cell research, and may make recommendations
from time to time that could place restrictions on the scope of
research using human embryonic or fetal tissue. Although numerous
states in the U.S. are considering, or have in place, legislation
relating to stem cell research, it is not yet clear what affect, if
any, state actions may have on our ability to commercialize stem
cell technologies.
Subsidiaries and Inter-Corporate Relationships
VistaGen Therapeutics. Inc., a California corporation, dba
VistaStem Therapeutics (
VistaStem
), is our wholly-owned subsidiary and has a
wholly-owned subsidiary, Artemis Neuroscience, Inc., a corporation
incorporated pursuant to the laws of the State of Maryland. The
operations of VistaStem, and its wholly owned subsidiary are
managed by our senior management team based in South San Francisco,
California.
Corporate History
VistaGen Therapeutics, Inc., a California corporation incorporated
on May 26, 1998, dba VistaStem, is our wholly-owned subsidiary.
Excaliber Enterprises, Ltd. (
Excaliber
), a publicly-held company (formerly OTCBB: EXCA)
was incorporated under the laws of the State of Nevada on October
6, 2005. Pursuant to a strategic merger transaction on May 11,
2011, Excaliber acquired all outstanding shares of VistaStem in
exchange for 341,823 shares of our common stock and assumed all of
VistaStem’s pre-Merger obligations (the
Merger
). Shortly after the Merger, Excaliber’s
name was changed to “VistaGen Therapeutics, Inc.” (a
Nevada corporation).
VistaStem, as the accounting acquirer in the Merger, recorded the
Merger as the issuance of common stock for the net monetary assets
of Excaliber, accompanied by a recapitalization. The
accounting treatment for the Merger was identical to that resulting
from a reverse acquisition, except that we recorded no goodwill or
other intangible assets. A total of 78,450 shares of our common
stock, representing the shares held by stockholders of Excaliber
immediately prior to the Merger are reflected as outstanding for
all periods presented in the Consolidated Financial Statements of
the Company included in Item 8 of this Annual
Report. Additionally, the Consolidated Balance Sheets reflect
the $0.001 par value of Excaliber’s common
stock.
The Consolidated Financial Statements included in Item 8 of this
Annual Report represent the activity of VistaStem from May 26,
1998, and the consolidated activity of VistaStem and Excaliber (now
VistaGen Therapeutics, Inc., a Nevada corporation), from May 11,
2011 (the date of the Merger) through March 31, 2019. The
Consolidated Financial Statements also include the accounts of
VistaStem’s two inactive wholly-owned subsidiaries, Artemis
Neuroscience, Inc., a Maryland corporation (
Artemis
), and VistaStem Canada, Inc., a corporation
organized under the laws of Ontario, Canada (
VistaStem
Canada
).
Employees
As of June 24, 2019, we employed nine full-time employees, four of
whom have doctorate degrees. Five full-time employees work in
research and development and laboratory support services and four
full-time employees work in general and administrative roles.
Staffing for all other functional areas is achieved through our
diverse network of strategic relationships with CROs, CDMOs, and
other third-party service providers and consultants, each of whom
provides services on a real-time, as-needed basis, including human
resources and payroll, information technology, facilities, legal,
investor and public relations, regulatory affairs and FDA program
management to complement our internal resources in these
areas.
We have never had a work stoppage, and none of our employees is
represented by a labor organization or under any collective
bargaining agreement. We consider our employee relations to be
good.
Facilities
We lease our office and laboratory space, which consists of
approximately 10,900 square feet located in South San Francisco,
California, under a lease expiring on July 31,
2022.
Legal Proceedings
None.
Environmental Regulation
Our business does not require us to comply with any extraordinary
environmental regulations.
Investing in our securities involves a high degree of risk. You
should consider carefully the risks and uncertainties described
below, together with all other information in this Annual Report
before investing in our securities. The risks described
below are not the only risks facing our
Company. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial
may also materially adversely affect our business, financial
condition and/or operating results. If any of the following
risks are realized, our business, financial condition and/or
operating results could be materially and adversely
affected.
Risks Related to Product Development, Regulatory Approval and
Commercialization
We depend heavily on the success of one or more of our current drug
candidates and we cannot be certain that we will be able to obtain
regulatory approval for, or successfully commercialize any of our
product candidates.
We currently have no drug products for sale and may never be able
to develop and commercialize marketable drug products. Our business
currently depends heavily on the successful development, regulatory
approval and commercialization of one or more of our current drug
candidates, as well as, but to a more limited extent, our ability
to acquire, license or produce, develop and commercialize
additional product candidates. Each of our current drug candidates
will require substantial additional nonclinical and clinical
development and regulatory approval before any of them may be
commercialized, and there can be no assurance that any of them will
ever achieve regulatory approval. Any DR NCE we produce will
require substantial nonclinical development, all phases of clinical
development, and regulatory approval before it may be
commercialized. The nonclinical and clinical development of our
product candidates are, and the manufacturing and marketing of our
product candidates will be, subject to extensive and rigorous
review and regulation by numerous government authorities in the
U.S. and in other countries where we intend to test and, if
approved, market any product candidate. Before obtaining regulatory
approvals for the commercial sale of any product candidate, we must
demonstrate through numerous nonclinical and clinical studies that
the product candidate is safe and effective for use in each target
indication. Research and development of product candidates in the
pharmaceutical industry is a long, expensive and uncertain process,
and delay or failure can occur at any stage of any of nonclinical
or clinical studies. This process takes many years and may also
include post-marketing studies, surveillance obligations and drug
safety programs, which would require the expenditure of substantial
resources beyond the proceeds we have raised to date. Of the large
number of drug candidates in development in the U.S., only a small
percentage will successfully complete the required FDA regulatory
approval process and will be commercialized. Accordingly, we cannot
assure you that any of our current drug candidates or any future
product candidates will be successfully developed or commercialized
in the U.S. or any market outside the U.S..
We are not permitted to market our product candidates in the U.S.
until we receive approval of a NDA from the FDA, or in any foreign
countries until we receive the requisite approval from such
countries. Obtaining FDA approval of a NDA is a complex, lengthy,
expensive and uncertain process. The FDA may refuse to permit the
filing of our NDA, delay, limit or deny approval of a NDA for many
reasons, including, among others:
|
●
|
if we submit a NDA and it is reviewed by a FDA advisory committee,
the FDA may have difficulties scheduling an advisory committee
meeting in a timely manner or the advisory committee may recommend
against approval of our application or may recommend that the FDA
require, as a condition of approval, additional nonclinical or
clinical studies, limitations on approved labeling or distribution
and use restrictions;
|
|
●
|
a FDA advisory committee may recommend, or the FDA may
require,
a
REMS safety
program as a condition of approval or
post-approval;
|
|
●
|
a FDA advisory committee or the FDA or applicable regulatory agency
may determine that there is insufficient evidence of overall
effectiveness or safety in a NDA and require additional clinical
studies;
|
|
●
|
the FDA or the applicable foreign regulatory agency may determine
that the manufacturing processes or facilities of third-party
contract manufacturers with which we contract do not conform to
applicable requirements, including current Good Manufacturing
Practices (
cGMPs
); or
|
|
●
|
the FDA or applicable foreign regulatory agency may change its
approval policies or adopt new regulations.
|
Any of these factors, many of which are beyond our control, could
jeopardize our ability to obtain regulatory approval for and
successfully commercialize any current or future drug product
candidate we may develop. Any such setback in our pursuit of
regulatory approval for any product candidate would have a material
adverse effect on our business and prospects.
In addition, we anticipate that certain of our product candidates,
including PH94B and PH10, will be subject to regulation as
combination products, which means that they are composed of both a
drug product and device product. If marketed individually, each
component would be subject to different regulatory pathways and
reviewed by different centers within the FDA. Our product
candidates that are considered to be drug-device combination
products will require review and coordination by FDA’s drug
and device centers prior to approval, which may delay
approval.
A combination
product with a drug primary mode of action generally would be
reviewed and approved pursuant to the drug approval processes under
the Federal Food, Drug and Cosmetic Act of 1938. In reviewing the
NDA application for such a product, however, FDA reviewers in the
drug center could consult with their counterparts in the device
center to ensure that the device component of the combination
product met applicable requirements regarding safety,
effectiveness, durability and performance.
Under FDA regulations, combination products
are subject to cGMP requirements applicable to both drugs and
devices, including the Quality System (
QS
) regulations applicable to medical devices.
Problems associated with the device component of the combination
product candidate may delay or prevent
approval.
We have been granted Fast Track designation from the FDA for
development of AV-101 for the adjunctive treatment of MDD and for
the treatment of NP. However, these designations may not actually
lead to faster development or regulatory review or approval
processes for AV-101. Further, there is no guarantee the FDA will
grant Fast Track designation for AV-101 as a treatment option for
other CNS indications or for any of our other product candidates in
the future.
The Fast Track designation is a program offered by the FDA,
pursuant to certain mandates under the FDA Modernization Act of
1997, designed to facilitate drug development and to expedite the
review of new drugs that are intended to treat serious or life
threatening conditions. Compounds selected must demonstrate the
potential to address unmet medical needs. The FDA’s Fast
Track designation allows for close and frequent interaction with
the FDA. A designated Fast Track drug may also be considered for
priority review with a shortened review time, rolling submission,
and accelerated approval if applicable. The designation does not,
however, guarantee FDA approval or expedited approval of any
application for the product candidate.
In December 2017, the FDA granted Fast Track designation for
development of AV-101 for the adjunctive (add-on) treatment of MDD
in patients with an inadequate response to current antidepressants.
In September 2018, the FDA granted Fast Track designation for
development of AV-101 for the treatment of NP. However, these FDA
Fast Track designations may not lead to a faster development or
regulatory review or approval process for AV-101 and the FDA may
withdraw Fast Track designation of AV-101 for either or both
indications if it believes that the respective designation is no
longer supported by data from our clinical development
programs.
In addition, we may apply for Fast Track designation for AV-101 as
a treatment option for other CNS indications, and for our other
product candidates. The FDA has broad discretion whether or not to
grant a Fast Track designation, and even if we believe AV-101,
PH94B, PH10 and/or other product candidates may be eligible for
this designation, we cannot be sure that the review or approval
will compare to conventional FDA procedures.
Results of earlier clinical trials may not be predictive of the
results of later-stage clinical trials.
The results of preclinical studies and early clinical trials of
AV-101, PH94B, PH10 and/or our other future product candidates, if
any, including positive results, may not be predictive of the
results of later-stage clinical trials. AV-101, PH94B, PH10 or any
other future product candidates in later stages of clinical
development may fail to show the desired safety and efficacy
results despite having progressed through nonclinical studies and
initial clinical trials. Many companies in the biopharmaceutical
industry have suffered significant setbacks in advanced clinical
trials due to adverse safety profiles or lack of efficacy,
notwithstanding promising results in earlier studies. Similarly,
our future clinical trial results may not be successful for these
or other reasons.
Moreover, nonclinical and clinical data are often susceptible to
varying interpretations and analyses, and many companies that
believed their product candidates performed satisfactorily in
nonclinical studies and clinical trials nonetheless failed to
obtain FDA approval. With respect to our current product
candidates, if our ELEVATE Study, any future clinical study of
AV-101, one or more of the future Phase 3 clinical trials of PH94B
for SAD or a future Phase 2 clinical trial of PH10 for MDD fail(s)
to produce positive results, the development timeline and
regulatory approval and commercialization prospects for AV-101,
PH94B, or PH10 and, correspondingly, our business and financial
prospects, could be materially adversely affected.
This drug candidate development risk is heightened by any changes
in planned timing or nature of clinical trials compared to
completed clinical trials. As product candidates are developed
through preclinical to early- and late-stage clinical trials
towards regulatory approval and commercialization, it is customary
that various aspects of the development program, such as
manufacturing and methods of administration, are altered along the
way in an effort to optimize processes and results. While these
types of changes are common and are intended to optimize the
product candidates for later stage clinical trials, approval and
commercialization, such changes do carry the risk that they will
not achieve these intended objectives.
For example, the results of planned clinical trials may be
adversely affected if we or any of our collaborators seek to
optimize and scale-up production of a product candidate. In such
case, we will need to demonstrate comparability between the newly
manufactured drug substance and/or drug product relative to the
previously manufactured drug substance and/or drug product.
Demonstrating comparability may cause us to incur additional costs
or delay initiation or completion of our clinical trials, including
the need to initiate a dose escalation study and, if unsuccessful,
could require us to complete additional nonclinical or clinical
studies of our product candidates.
If serious adverse events or other undesirable side effects or
safety concerns attributable to AV-101 are identified during the
Baylor Study, other investigator-sponsored clinical trials, in our
clinical trials of AV-101, including our ELEVATE study, or our
clinical trials of PH94B or PH10, it may adversely affect or delay
our clinical development and commercialization of AV-101, PH94B or
PH10.
Undesirable side effects caused by our product candidates could
cause us or regulatory authorities to interrupt, delay or halt
clinical trials and could result in a more restrictive label or the
delay or denial of regulatory approval. AV-101 was previously
tested by the NIMH in the NIMH Study, is currently being tested by
Baylor in the Baylor Study and may be subjected to testing in the
future for other CNS indications in additional
investigator-sponsored clinical trials. Although no
treatment-related serious adverse events (
SAEs
) were observed in the NIMH Study, if
treatment-releated SAEs or other undesirable side effects or safety
concerns, or unexpected characteristics attributable to AV-101 are
observed in the Baylor Study other investigator-sponsored clinical
trials of AV-101, our clinical trials of AV-101, including our
ELEVATE Study, or in our future clinical trials of PH94B or PH10,
it may adversely affect or delay our clinical development and
commercialization of AV-101, PH94B or PH10, and the occurrence of
these events could have a material adverse effect on our business
and financial prospects. Results of our future clinical trials
could reveal a high and unacceptable severity and prevalence of
adverse side effects. In such an event, our trials could be
suspended or terminated and the FDA or other regulatory agency
could order us to cease further development of or deny approval of
our product candidates for any or all targeted indications. The
drug-related side effects could affect patient recruitment or the
ability of enrolled patients to complete the trial or result in
potential product liability claims.
Additionally, if any of our product candidates receives marketing
approval and we or others later identify undesirable or
unacceptable side effects caused by these product candidates, a
number of potentially significant negative consequences could
result, including:
●
regulatory
authorities may withdraw, suspend, or limit approvals of such
product and require us to take them off the market;
●
regulatory
authorities may require the addition of labeling statements,
specific warnings, a contraindication or field alerts to physicians
and pharmacies;
●
regulatory
authorities may require a medication guide outlining the risks of
such side effects for distribution to patients, or that we
implement a REMS plan to ensure that the benefits of the product
outweigh its risks;
●
we
may be required to change the way a product is distributed or
administered, conduct additional clinical trials or change the
labeling of a product;
●
we
may be required to conduct additional post-marketing studies or
surveillance;
●
we
may be subject to limitations on how we may promote the
product;
●
sales
of the product may decrease significantly;
●
we
may be subject to regulatory investigations, government enforcement
actions, litigation or product liability claims; and
●
our
products may become less competitive or our reputation may
suffer.
Any of these events could prevent us or any collaborators from
achieving or maintaining market acceptance of our product
candidates or could substantially increase commercialization costs
and expenses, which in turn could delay or prevent us from
generating significant revenue from the sale of our product
candidates.
Failures or delays in the commencement or completion of our planned
clinical trials and nonclinical studies of AV-101, PH94B, PH10 or
other our product candidates could result in increased costs to us
and could delay, prevent or limit our ability to generate revenue
and continue our business.
We will need to complete our ELEVATE Study, at least two pivotal
Phase 3 clinical trials, additional toxicology and other standard
nonclinical and clinical safety studies, as well as certain
standard smaller clinical studies prior to the submission of any
NDA for regulatory approval for AV-101 as an adjunctive treatment
for MDD in patients with an inadequate response to current ADs, or
any other CNS indication. Similarly, we will need to complete at
least two pivotal Phase 3 clinical studies of PH94B, additional
toxicology and other standard nonclinical and clinical safety
studies, as well as certain standard smaller clinical studies prior
to our submission of an NDA for regulatory approval of PH94B as an
on-demand treatment for SAD or any CNS other indication. For PH10,
we will need to complete at least one additional Phase 2 clinical
study, two pivotal Phase 3 clinical trials, additional toxicology
and other standard nonclinical and clinical safety studies, as well
as certain standard smaller clinical studies prior to the
submission of an NDA for regulatory approval of PH10 as treatment
for MDD, or any other CNS indication.Successful completion of our
nonclinical and clinical trials is a prerequisite to submitting an
NDA and, consequently, the ultimate approval required before
commercial marketing of any product candidate we may develop.
Except as disclosed herein, we do not know whether the Baylor
Study, our ELEVATE Study or any of our future-planned nonclinical
and clinical trials of AV-101, PH94B, PH10 or any other product
candidate will be completed on schedule, if at all, as the
commencement and completion of nonclinical and clinical trials can
be delayed or prevented for a number of reasons, including, among
others:
|
●
|
the regulatory authority may deny permission to proceed with
planned clinical trials or any other clinical trials we may
initiate, or may place a planned or ongoing clinical trial on
hold;
|
|
●
|
delays in filing or receiving approvals from regulatory authorities
of additional INDs that
may be
required;
|
|
●
|
negative or ambiguous results from nonclinical or clinical
studies;
|
|
●
|
delays in reaching or failing to reach agreement on acceptable
terms with prospective CROs, investigators and clinical trial
sites, the terms of which can be subject to extensive negotiation
and may vary significantly among different CROs, investigators and
clinical trial sites;
|
|
●
|
delays in the manufacturing of, or insufficient supply of product
candidates necessary to conduct nonclinical or clinical trials,
including delays in the manufacturing of sufficient supply of drug
substance or finished drug product;
|
|
●
|
inability to manufacture or obtain clinical supplies of a product
candidate meeting required quality standards;
|
|
●
|
difficulties obtaining Institutional Review Board
(
IRB
) approval to conduct a clinical trial at a
prospective clinical site or sites;
|
|
●
|
challenges in recruiting and enrolling patients to participate in
clinical trials, including the proximity of patients to clinical
trial sites;
|
|
●
|
eligibility criteria for a clinical trial, the nature of a clinical
trial protocol, the availability of approved effective treatments
for the relevant disease and competition from other clinical trial
programs for similar indications;
|
|
●
|
severe or unexpected adverse drug-related side effects experienced
by patients in a clinical trial;
|
|
●
|
delays in validating any endpoints utilized in a clinical
trial;
|
|
●
|
the regulatory authority may disagree with our clinical trial
design and our interpretation of data from prior nonclinical
studies or clinical trials, or may change the requirements for
approval even after it has reviewed and commented on the design for
our clinical trials;
|
|
●
|
reports from nonclinical or clinical testing of other CNS
indications or therapies that raise safety or efficacy concerns;
and
|
|
●
|
difficulties retaining patients who have enrolled in a clinical
trial but may be prone to withdraw due to rigors of the clinical
trial, lack of efficacy, side effects, personal issues or loss of
interest.
|
Clinical trials may also be delayed or terminated prior to
completion as a result of ambiguous or negative interim results. In
addition, a clinical trial may be suspended or terminated by us,
the
regulatory
authority
, the IRBs at the sites where the IRBs are
overseeing a clinical trial, a data and safety monitoring board
(
DSMB
), overseeing the clinical trial at issue or other
regulatory authorities due to a number of factors, including, among
others:
|
●
|
failure to conduct the clinical trial in accordance with regulatory
requirements or approved clinical protocols;
|
|
●
|
inspection of the clinical trial operations or trial sites by the
regulatory authority that reveals deficiencies or violations that
require us to undertake corrective action, including the imposition
of a clinical hold;
|
|
●
|
unforeseen safety issues, including any that could be identified in
nonclinical carcinogenicity studies, adverse side effects or lack
of effectiveness;
|
|
●
|
changes in government regulations or administrative
actions;
|
|
●
|
problems with clinical supply materials that may lead to regulatory
actions; and
|
|
●
|
lack of adequate funding to continue nonclinical or clinical
studies.
|
Changes in regulatory requirements, regulatory guidance or
unanticipated events during our nonclinical studies and clinical
trials of AV-101, PH94B, PH10 or other product candidates may
occur, which may result in changes to nonclinical studies and
clinical trial protocols or additional nonclinical studies and
clinical trial requirements, which could result in increased costs
to us and could delay our development
timeline.
Changes in regulatory requirements, guidance or unanticipated
events during our nonclinical studies and clinical trials of
AV-101, PH94B, PH10 or other product candidates may force us to
amend nonclinical studies and clinical trial protocols or the
regulatory authority may impose additional nonclinical studies and
clinical trial requirements. Amendments or changes to our clinical
trial protocols would require resubmission to the regulatory
authority and IRBs for review and approval, which may adversely
impact the cost, timing or successful completion of clinical
trials. Similarly, amendments to our nonclinical studies may
adversely impact the cost, timing, or successful completion of
those nonclinical studies. If we experience delays completing, or
if we terminate, any of our nonclinical studies or clinical trials,
or if we are required to conduct additional nonclinical studies or
clinical trials, the commercial prospects for AV-101, PH94B, PH10
or other product candidates may be harmed and our ability to
generate product revenue will be delayed.
We rely, and expect that we will continue to rely, on third parties
to conduct our nonclinical and clinical trials of our current
product candidates and will continue to do so for any other future
product candidates. If these third parties do not successfully
carry out their contractual duties and/or meet expected deadlines,
completion of our nonclinical or clinical trials and development of
AV-101, PH94B, PH10 or other future product candidates may be
delayed and we may not be able to obtain regulatory approval for or
commercialize AV-101, PH94B, PH10 or other future product
candidates and our business could be substantially
harmed.
By strategic design, we do not have the internal staff resources to
independently conduct nonclinical and clinical trials of our
product candidates completely on our own. We rely on our extensive
network of strategic relationships with various academic research
centers, medical institutions, nonclinical and clinical
investigators, contract laboratories and other third parties, such
as CROs, to assist us to conduct and complete nonclinical and
clinical trials of our product candidates. We enter into agreements
with third-party CROs to provide monitors for and to manage data
for our clinical trials, as well as provide other services
necessary to prepare for, conduct and complete clinical trials. We
rely heavily on these and other third-parties for execution of
nonclinical and clinical trials for our product candidates and we
control only certain aspects of their activities. As a result, we
have less direct control over the conduct, timing and completion of
these nonclinical and clinical trials and the management of data
developed through nonclinical and clinical trials than would be the
case if we were relying entirely upon our own internal staff
resources. Communicating with outside parties can also be
challenging, potentially leading to mistakes as well as
difficulties in coordinating activities. Outside parties
may:
|
●
|
have staffing difficulties and/or undertake obligations beyond
their anticipated capabilities and resources;
|
|
●
|
fail to comply with contractual obligations;
|
|
●
|
experience regulatory compliance issues;
|
|
●
|
undergo changes in priorities or become financially distressed;
or
|
|
●
|
form relationships with other entities, some of which may be our
competitors.
|
These factors may materially adversely affect the willingness or
ability of third parties to conduct our nonclinical and clinical
trials and may subject us to unexpected cost increases that are
beyond our control. Nevertheless, we are responsible for ensuring
that each of our nonclinical studies and clinical trials is
conducted and completed in accordance with the applicable protocol,
legal, regulatory and scientific requirements and standards, and
our reliance on CROs, Baylor or other independent investigators
does not relieve us of our regulatory responsibilities. We and our
CROs, Baylor and any investigator in an investigator-sponsored
study are required to comply with regulations and guidelines,
including current Good Clinical Practice regulations
(
cGCPs
) for conducting, monitoring, recording and
reporting the results of clinical trials to ensure that the data
and results are scientifically credible and accurate, and that the
trial patients are adequately informed of the potential risks of
participating in clinical trials. These regulations are enforced by
the FDA, the Competent Authorities of the Member States of the
European Economic Area and comparable foreign regulatory
authorities for any products in clinical development. The FDA
enforces cGCP regulations through periodic inspections of clinical
trial sponsors, principal investigators and trial sites. If we, any
of our CROs or any of our third-party collaborators fail to comply
with applicable cGCPs, the clinical data generated in clinical
trials involving our product candidates may be deemed unreliable
and the FDA or comparable foreign regulatory authorities may
require us to perform additional clinical trials before approving
our marketing applications. We cannot assure you that, upon
inspection, the FDA will determine that any of our clinical trials
comply with cGCPs. In addition, our clinical trials must be
conducted with product candidates produced under cGMPs and will
require a large number of test patients. Our failure or the failure
of our CROs or other third-party collaborators to comply with these
regulations may require us to repeat clinical trials, which would
delay the regulatory approval process and could also subject us to
enforcement action up to and including civil and criminal
penalties.
Although we design our clinical trials for our product candidates,
our clinical development strategy involves having CROs and other
third-party investigators and medical institutions conduct clinical
trials of our product candidates. As a result, many important
aspects of our drug development programs are outside of our direct
control. In addition, although CROs, or independent investigators
or medical institutions, as the case may be, may not perform all of
their obligations under arrangements with us or in compliance with
applicable regulatory requirements, under certain circumstances, we
may be responsible and subject to enforcement action that may
include civil penalties up to and including criminal prosecution
for any violations of FDA laws and regulations during the conduct
of clinical trials of our product candidates. If such third parties
do not perform clinical trials of our product candidates in a
satisfactory manner, breach their obligations to us or fail to
comply with applicable regulatory requirements, the development and
commercialization of our product candidates may be delayed or our
development program materially and irreversibly harmed. In certain
cases, including the Baylor Study and other investigator-sponsored
clinical studies, we cannot control the amount and timing of
resources these third-parties devote to clinical trials involving
our product candidates. If we are unable to rely on nonclinical and
clinical data collected by our third-party collaborators, we could
be required to repeat, extend the duration of, or increase the size
of our clinical trials and this could significantly delay
commercialization and require significantly greater
expenditures.
If our relationships with one or more of our third-party
collaborators terminates, we may not be able to enter into
arrangements with alternative third-party
collaborators. If such third-party collaborators,
including our CROs, Baylor or the VA do not successfully carry out
their contractual duties or obligations or meet expected deadlines,
if they need to be replaced or if the quality or accuracy of the
clinical data they obtain is compromised due to their failure to
adhere to applicable clinical protocols, regulatory requirements or
for other reasons, any clinical trials that such third-parties are
associated with may be extended, delayed or terminated, and we may
not be able to obtain regulatory approval for or successfully
develop and commercialize our product candidates. As a result, we
believe that our financial results and the commercial prospects for
our product candidates in the subject indication would be harmed,
our costs would increase and our ability to generate revenue would
be delayed.
We rely completely on third-parties to manufacture, formulate, hold
and distribute supplies of our product candidates for all
nonclinical and clinical studies, and we intend to continue to rely
on third parties to produce all nonclinical, clinical and
commercial supplies of our product candidates in the
future.
By strategic design, we do not currently have, nor do we plan to
acquire or develop, internal infrastructure or technical
capabilities to manufacture, formulate, hold or distribute supplies
of our product candidates, for use in nonclinical and clinical
studies or commercial scale. As a result, with respect to all
of our product candidates, we rely, and will continue to rely,
completely on CMOs to manufacture API and formulate, hold and
distribute final drug product. The facilities used by our CMOs to
manufacture AV-101, PH94B and PH10 API and AV-101, PH94B and PH10
final drug product are subject to a pre-approval inspection by the
FDA and other comparable foreign regulatory agencies to assess
compliance with applicable regulatory guidelines and requirements,
including cGMPs, and may be required to undergo similar inspections
by the FDA or other comparable foreign regulatory agencies, after
we submit INDs, NDAs or relevant foreign regulatory submission
equivalent to the applicable regulatory agency.
We do not directly control the manufacturing process or the supply
or quality of materials used in the manufacturing and formulation
of our product candidates, and, with respect to all of our product
candidates, we are completely dependent on our CMOs to comply with
all applicable cGMPs for the manufacturing of both API and finished
drug product. If our CMOs cannot secure adequate supplies of
suitable raw materials or successfully manufacture our product
candidates, including AV-101, PH94B and PH10 API and finished drug
product, that conforms to our specifications and the strict
regulatory requirements of the FDA or applicable foreign regulatory
agencies, production of sufficient supplies of our product
candidates, including AV-101, PH94B and PH10 API and finished drug
product, may be delayed and our CMOs may not be able to secure
and/or maintain regulatory approval for their manufacturing
facilities, or the FDA may take other actions, including the
imposition of a clinical hold. In addition, we have no direct
control over our CMOs’ ability to maintain adequate quality
control, quality assurance and qualified personnel. All of our CMOs
are engaged with other companies to supply and/or manufacture
materials or products for such other companies, which exposes our
CMOs to regulatory risks for the production of such materials and
products. As a result, failure to satisfy the regulatory
requirements for the production of those materials and products may
affect the regulatory clearance of our CMO’s facilities
generally or affect the timing of manufacture of AV-101, PH94B and
PH10 for required or planned nonclinical and/or clinical studies.
If the FDA or an applicable foreign regulatory agency determines
now or in the future that our CMOs’ facilities are
noncompliant, we may need to find alternative manufacturing
facilities, which would adversely impact our ability to develop,
obtain regulatory approval for or market our product candidates.
Our reliance on CMOs also exposes us to the possibility that they,
or third parties with access to their facilities, will have access
to and may appropriate our trade secrets or other proprietary
information.
With respect to AV-101, PH94B and PH10, we do not yet have
long-term supply agreements in place with our CMOs and each batch
of AV-101, PH94B and PH10 is or will be individually contracted
under a separate supply agreement. If we engage new CMOs, such
contractors must complete an inspection by the FDA and other
applicable foreign regulatory agencies. We plan to continue to rely
upon CMOs and, potentially, collaboration partners, to manufacture
research and development scale, and, if approved, commercial
quantities of our product candidates. Although we believe our
current scale of API manufacturing for AV-101, and our contemplated
scale of API manufacturing for PH94B and PH10, and the current and
projected supply of AV-101, PH94B and PH10 API and finished drug
product will be adequate to support our planned nonclinical and
clinical studies of AV-101, PH94B and PH10, no assurance can be
given that unanticipated supply shortages or CMO-related delays in
the manufacture and formulation of AV-101, PH94B or PH10 API and/or
finished drug product will not occur in the future.
Additionally, we anticipate that PH94B and PH10 will be considered
drug-device combination products. Third-party manufacturers may not
be able to comply with cGMP requirements applicable to drug/device
combination products, including applicable provisions of the
FDA’s or a comparable foreign regulatory authority’s
drug cGMP regulations, device cGMP requirements embodied in the
Quality System Regulation (
QSR
) or similar regulatory requirements outside the
U.S. Our failure, or the failure of our third-party manufacturers,
to comply with applicable regulations could result in sanctions
being imposed on us, including clinical holds, fines, injunctions,
civil penalties, delays, suspension or withdrawal of approvals,
license revocation, seizures or recalls of product candidates,
operating restrictions and criminal prosecutions, any of which
could significantly affect supplies of our product candidates. The
facilities used by our CMOs to manufacture our product candidates
must be approved by the FDA anf comparable foreign regulatory
authorities pursuant to inspections that will or may be conducted
after we submit our NDA. We do not control the manufacturing
process of, and are completely dependent on, our CMO partners for
compliance with cGMPs and QSRs. If our CMOs cannot successfully
manufacture material that conforms to our specifications and the
strict regulatory requirements of the FDA or other comparable
foreign regulatory authorities, they will not be able to secure
and/or maintain regulatory approval for their manufacturing
facilities. In addition, we have no control over the ability of our
contract manufacturers to maintain adequate quality control,
quality assurance and qualified personnel. If the FDA or a
comparable foreign regulatory authority does not approve these
facilities for the manufacture of our product candidates or if it
withdraws any such approval in the future, we may need to find
alternative manufacturing facilities, which would significantly
impact our ability to develop, obtain regulatory approval for or
market our product candidates, if approved. CMOs may face
manufacturing or quality control problems causing drug substance
production and shipment delays or a situation where the contractor
may not be able to maintain compliance with the applicable cGMP and
QSR requirements. Any failure to comply with cGMP or QSR
requirements or other FDA, EMA and comparable foreign regulatory
requirements could adversely affect our clinical research
activities and our ability to develop our product candidates and
market our products following approval.
Even if we receive marketing approval for AV-101, PH94B, PH10 or
any other product candidate in the U.S., we may never receive
regulatory approval to market AV-101, PH94B, PH10 or any other
product candidate outside of the U.S.
In order to market AV-101, PH94B, PH10 or any other product
candidate outside of the U.S., we must establish and comply with
the numerous and varying safety, efficacy and other regulatory
requirements of other countries. Approval procedures vary among
countries and can involve additional product candidate testing and
additional administrative review periods. The time required to
obtain approvals in other countries might differ from that required
to obtain FDA approval. The marketing approval processes in other
countries may implicate all of the risks detailed above regarding
FDA approval in the U.S. as well as other risks. In particular, in
many countries outside of the U.S., products must receive pricing
and reimbursement approval before the product can be
commercialized. Obtaining this approval can result in substantial
delays in bringing products to market in such countries. Marketing
approval in one country does not ensure marketing approval in
another, but a failure or delay in obtaining marketing approval in
one country may have a negative effect on the regulatory process in
others. Failure to obtain marketing approval in other countries or
any delay or other setback in obtaining such approval would impair
our ability to market our product candidates in such foreign
markets. Any such impairment would reduce the size of our potential
market, which could have a material adverse impact on our business,
results of operations and prospects.
If any of our product candidates are ultimately regulated as
controlled substances, we, our CMOs, as well as future
distributors, prescribers, and dispensers will be required to
comply with additional regulatory requirements which could delay
the marketing of our product candidates, and increase the cost and
burden of manufacturing, distributing, dispensing, and prescribing
our product candidates.
Before we can commercialize our product candidates in the U.S. or
any market outside the U.S., the U.S. Drug Enforcement
Administration (
DEA
) or its foreign counterpart may need to determine
whether such product candidates will be considered to be a
controlled substance, taking into account the recommendation of the
FDA or its foreign counterpart, as the case may be. This may be
a lengthy process that could delay our marketing of a product
candidate and could potentially diminish any regulatory exclusivity
periods for which we may be eligible, which would increase the cost
associated with commercializing such products and, in turn, may
have an adverse impact on our results of operations. Although we
currently do not know whether the DEA or any foreign counterpart
will consider any of our current or future product candidate to be
controlled substances, we cannot yet give any assurance that such
product candidates, including AV-101, PH94B and PH10 will not be
regulated as controlled substances.
If any of our product candidates are regulated as controlled
substances, depending on the DEA controlled substance schedule in
which the product candidates are placed or that of its foreign
counterpart, we, our CMOs, and any future distributers,
prescribers, and dispensers of the scheduled product candidates may
be subject to significant regulatory requirements, such as
registration, security, recordkeeping, reporting, storage,
distribution, importation, exportation, inventory, quota and other
requirements administered by the DEA or a foreign counterpart of
the DEA as the case may be. Moreover, if any of our product
candidates are regulated as controlled substances, we and our CMOs
would be subject to initial and periodic DEA inspection. If we or
our CMOs are not able to obtain or maintain any necessary DEA
registrations or comparable foreign registrations, we may not be
able to commercialize any product candidates that are deemed to be
controlled substances or we may need to find alternative CMOs,
which would take time and cause us to incur additional costs,
delaying or limit our commercialization efforts.
Because of their restrictive nature, these laws and regulations
could limit commercialization of our product candidates, should
they be deemed to contain controlled substances. Failure to comply
with the applicable controlled substance laws and regulations can
also result in administrative, civil or criminal enforcement. The
DEA or its foreign counterparts may seek civil penalties, refuse to
renew necessary registrations, or initiate administrative
proceedings to revoke those registrations. In some circumstances,
violations could result in criminal proceedings or consent decrees.
Individual states also independently regulate controlled
substances.
If we are unable to establish sales and marketing capabilities or
enter into agreements with third parties to market and sell our
product candidates, we may not be able to generate any
revenue.
We do not currently have any internal resources for the sale,
marketing and distribution of pharmaceutical products, and we may
not create such internal capabilities in the foreseeable future.
Therefore, to market our product candidates, if approved by the FDA
or any other regulatory body, we must make contractual arrangements
with third parties to perform services related to sales, marketing,
managerial and other non-technical capabilities relating to the
commercialization of our product candidates, or establish those
capabilities prior to market approval. If we are unable to
establish adequate contractual arrangements for such sales,
marketing and distribution capabilities, or if we are unable to do
so on commercially reasonable terms, or if we are unable to
establish such capabilities on our own, our business, results of
operations, financial condition and prospects will be materially
adversely affected.
Even if we receive marketing approval for our product candidates,
our product candidates may not achieve broad market acceptance,
which would limit the revenue that we generate from their
sales.
The commercial success of our product candidates, if approved by
the FDA or other applicable regulatory authorities, will depend
upon the awareness and acceptance of our product candidates among
the medical community, including physicians, patients and
healthcare payors. Market acceptance of our product candidates, if
approved, will depend on a number of factors, including, among
others:
|
●
|
the efficacy and safety of our product candidates as demonstrated
in clinical trials, and, if required by any applicable regulatory
authority in connection with the approval for the applicable
indications, to provide patients with incremental health benefits,
as compared with other available therapies;
|
|
●
|
limitations or warnings contained in the labeling approved for our
product candidates by the FDA or other applicable regulatory
authorities;
|
|
●
|
the clinical indications for which our product candidates are
approved;
|
|
●
|
availability of alternative treatments already approved or expected
to be commercially launched in the near future;
|
|
●
|
the potential and perceived advantages of our product candidates
over current treatment options or alternative treatments, including
future alternative treatments;
|
|
●
|
the willingness of the target patient population to try new
therapies and of physicians to prescribe these
therapies;
|
|
●
|
the strength of marketing and distribution support and timing of
market introduction of competitive products;
|
|
●
|
publicity concerning our products or competing products and
treatments;
|
|
●
|
pricing and cost effectiveness;
|
|
●
|
the effectiveness of our sales and marketing
strategies;
|
|
●
|
our ability to increase awareness of our product candidates through
marketing efforts;
|
|
●
|
our ability to obtain sufficient third-party coverage or
reimbursement; or
|
|
●
|
the willingness of patients to pay out-of-pocket in the absence of
third-party coverage.
|
If our product candidates are approved but do not achieve an
adequate level of acceptance by patients, physicians and payors, we
may not generate sufficient revenue from our product candidates to
become or remain profitable. Before granting reimbursement
approval, healthcare payors may require us to demonstrate that our
product candidates, in addition to treating these target
indications, also provide incremental health benefits to patients.
Our efforts to educate the medical community and third-party payors
about the benefits of our product candidates may require
significant resources and may never be successful.
Our product candidates may cause undesirable safety concerns and
side effects that could delay or prevent their regulatory approval,
limit the commercial profile of an approved label, or result in
significant negative consequences following marketing approval, if
any.
Undesirable safety concerns and side effects caused by our product
candidates could cause us or regulatory authorities to interrupt,
delay or halt nonclinical studies and clinical trials and could
result in a more restrictive label or the delay or denial of
regulatory approval by the FDA or other regulatory
authorities.
Further, clinical trials by their nature utilize a sample of
potential patient populations. With a limited number of patients
and limited duration of exposure, rare and severe side effects of
our product candidates may only be uncovered with a significantly
larger number of patients exposed to the product candidate. If our
product candidates receive marketing approval and we or others
identify undesirable safety concerns or side effects caused by such
product candidates (or any other similar products) after such
approval, a number of potentially significant negative consequences
could result, including:
|
●
|
regulatory authorities may withdraw or limit their approval of such
product candidates;
|
|
●
|
regulatory authorities may require the addition of labeling
statements, such as a “black box” warning or a
contraindication;
|
|
●
|
we may be required to change the way such product candidates are
distributed or administered, conduct additional clinical trials or
change the labeling of the product candidates;
|
|
●
|
we may be subject to regulatory investigations and government
enforcement actions;
|
|
●
|
we may decide to remove such product candidates from the
marketplace;
|
|
●
|
we could be sued and held liable for injury caused to individuals
exposed to or taking our product candidates; and
|
|
●
|
our reputation may suffer.
|
We believe that any of these events could prevent us from achieving
or maintaining market acceptance of the affected product candidates
and would substantially increase the costs of commercializing our
product candidates and significantly impact our ability to
successfully commercialize our product candidates and generate
revenues.
Even if we receive marketing approval for our product candidates,
we may still face future development and regulatory
difficulties.
Even if we receive marketing approval for our product candidates,
regulatory authorities may still impose significant restrictions on
our product candidates, indicated uses or marketing or impose
ongoing requirements for potentially costly post-approval studies.
Our product candidates will also be subject to ongoing regulatory
requirements governing the labeling, packaging, storage and
promotion of the product and record keeping and submission of
safety and other post-market information. The FDA and other
regulatory authorities have significant post-marketing authority,
including, for example, the authority to require labeling changes
based on new safety information and to require post-marketing
studies or clinical trials to evaluate serious safety risks related
to the use of a drug. The FDA and other regulatory authorities also
have the authority to require, as part of an NDA or post-approval,
the submission of a REMS or comparable safety program. Any REMS or
comparable safety program required by the FDA or other regulatory
authority may lead to increased costs to assure compliance with new
post-approval regulatory requirements and potential requirements or
restrictions on the sale of approved products, all of which could
lead to lower sales volume and revenue.
Manufacturers of drug and device products and their facilities are
subject to continual review and periodic inspections by the FDA and
other regulatory authorities for compliance with cGMPs and other
regulations. If we or a regulatory agency discover problems with
our product candidates, such as adverse events of unanticipated
severity or frequency, or problems with the facility where our
product candidates are manufactured, a regulatory agency may impose
restrictions on our product candidates, the manufacturer or us,
including requiring withdrawal of our product candidates from the
market or suspension of manufacturing. If we, our product
candidates, or the manufacturing facilities for our product
candidates fail to comply with applicable regulatory requirements,
a regulatory agency may, among other things:
|
●
|
issue warning letters or untitled letters;
|
|
●
|
seek an injunction or impose civil or criminal penalties or
monetary fines;
|
|
●
|
suspend or withdraw marketing approval;
|
|
●
|
suspend any ongoing clinical trials;
|
|
●
|
refuse to approve pending applications or supplements to
applications submitted by us;
|
|
●
|
suspend or impose restrictions on operations, including costly new
manufacturing requirements; or
|
|
●
|
seize or detain products, refuse to permit the import or export of
products, or require that we initiate a product
recall.
|
Competing therapies could emerge adversely affecting our
opportunity to generate revenue from the sale of our product
candidates.
The pharmaceutical industry is highly competitive. There are many
public and private pharmaceutical companies, universities,
governmental agencies and other research organizations actively
engaged in the research and development of product candidates that
may be similar to and compete with our product candidates or
address similar markets. It is probable that the number of
companies seeking to develop product candidates similar to and
competitive with our product candidates will increase.
Currently, management is unaware of any FDA-approved oral
adjunctive therapy for MDD patients with an inadequate response to
standard antidepressants having the same mechanism of
pharmacological action and safety profile as our
orally-administered AV-101 or our intranasally-administered PH10.
However, new antidepressant products with other mechanisms of
pharmacological action or products approved for other indications,
including the FDA-approved anesthetic ketamine hydrochloride
administered intravenously, are being or may be used off-label for
treatment of MDD, as well as other CNS indications for which AV-101
or PH10 may have therapeutic potential. Additionally, other
non-pharmaceutical treatment options, such psychotherapy and
electroconvulsive therapy (
ECT
) are used before or instead of standard
antidepressant medications to treat patients with MDD. Management
is also unaware of any FDA-approved rapid-onset, on-demand
treatment for SAD having the same mechanism of pharmacological
action and safety profile as our PH94B.
In the field of new generation, oral adjunctive treatments for
adult patients with MDD with an inadequate response to standard
FDA-approved ADs, we believe our principal competitors may be
Axsome’s AX-05, Alkermes’ ALKS-5461, Allergan’s
AGN-241751 and Sage’s Sage-217. Additional potential
competitors may include, but not be limited to, academic and
private commercial clinics providing intravenous ketamine therapy
on an off-label basis and Janssen’s intranasally-administered
Spravato (esketamine). With respect to PH94B and current
FDA-approved treatment options for SAD in the U.S., our competition
may include, but is not limited to, certain current generic ADs
approved by the FDA for treatment of SAD and certain classes of
drugs used on an off-label basis for treatment of SAD, including
benzodiazapines such as alprazolam, and beta blockers such as
propranolol.
Many of our potential competitors, alone or with their strategic
partners, have substantially greater financial, technical and human
resources than we do and significantly greater experience in the
discovery, and development of product candidates, obtaining FDA and
other regulatory approvals of treatments and the commercialization
of those treatments. With respect to AV-101 and PH10, we
believe that a range of pharmaceutical and biotechnology companies
have programs to develop drug candidates for the treatment of
depression, including MDD, Parkinson’s disease
levodopa-induced dyskinesia, neuropathic pain, epilepsy, and other
neurological conditions and diseases, including, but not limited
to, Abbott Laboratories, Acadia, Allergan, Alkermes, Aptynix,
AstraZeneca, Eli Lilly, GlaxoSmithKline, IntraCellular, Janssen,
Lundbeck, Merck, Novartis, Ono, Otsuka, Pfizer, Roche, Sage,
Sumitomo Dainippon, and Takeda, as well as any affiliates of the
foregoing companies. With respect to PH94B, in addition
to potential competition from certain current FDA-approved
antidepressants and off-label use of benzodiazepines and beta
blockers, we believe additional drug candidates in development for
SAD may include, but potentially not be limited to, an oral fatty
acid amide hydrolase inhibitor in development by Janssen and a
sublingual formulation of the sodium channel blocker riluzole in
development by Biohaven. Mergers and acquisitions in the
biotechnology and pharmaceutical industries may result in even more
resources being concentrated among a smaller number of our
competitors. Our commercial opportunity could be reduced or
eliminated if our competitors develop and commercialize products
that are safer, more effective, have fewer or less severe side
effects, are more convenient or are less expensive than any
products that we may develop. Our competitors also may obtain FDA
or other regulatory approval for their products more rapidly than
we may obtain approval for ours, which could result in our
competitors establishing a strong market position before we are
able to enter the market.
We may seek to establish collaborations, and, if we are not able to
establish them on commercially reasonable terms, we may have to
alter our development and commercialization plans.
Our drug development programs and the potential commercialization
of our product candidates will require substantial additional cash
to fund expenses. For some of our product candidates, we may decide
to collaborate with pharmaceutical and biotechnology companies for
the development and potential commercialization of those product
candidates.
We face significant competition in seeking appropriate
collaborators. Whether we reach a definitive agreement for
collaboration will depend, among other things, upon our assessment
of the collaborator’s resources and expertise, the terms and
conditions of the proposed collaboration and the proposed
collaborator’s evaluation of a number of factors. Those
factors may include the design or results of nonclinical and
clinical trials, the likelihood of approval by the FDA or similar
regulatory authorities outside the United States, the potential
markets for the subject product candidate, the costs and
complexities of manufacturing and delivering such product candidate
to patients, the potential of competing products, the existence of
uncertainty with respect to our ownership of technology, which can
exist if there is a challenge to such ownership without regard to
the merits of the challenge and industry and market conditions
generally. The collaborator may also consider alternative product
candidates or technologies for similar indications that may be
available to collaborate on and whether such collaboration could be
more attractive than the one with us for our product candidate. The
terms of any collaboration or other arrangements that we may
establish may not be favorable to us.
We may also be restricted under existing collaboration agreements
from entering into future agreements on certain terms with
potential collaborators. Collaborations are complex and
time-consuming to negotiate and document. In addition, there have
been a significant number of recent business combinations among
large pharmaceutical companies that have resulted in a reduced
number of potential future collaborators.
We may not be able to negotiate collaborations on a timely basis,
on acceptable terms, or at all. If we are unable to do so, we may
have to curtail the development of the product candidate for which
we are seeking to collaborate, reduce or delay its development
program or one or more of our other development programs, delay its
potential commercialization or reduce the scope of any sales or
marketing activities, or increase our expenditures and undertake
development or commercialization activities at our own expense. If
we elect to increase our expenditures to fund development or
commercialization activities on our own, we may need to obtain
additional capital, which may not be available to us on acceptable
terms or at all. If we do not have sufficient funds, we may not be
able to further develop our product candidates or bring them to
market and generate product revenue.
In addition, any future collaboration that we enter into may not be
successful. The success of our collaboration arrangements will
depend heavily on the efforts and activities of our collaborators.
Collaborators generally have significant discretion in determining
the efforts and resources that they will apply to these
collaborations. Disagreements between parties to a collaboration
arrangement regarding clinical development and commercialization
matters can lead to delays in the development process or
commercializing the applicable product candidate and, in some
cases, termination of the collaboration arrangement. These
disagreements can be difficult to resolve if neither of the parties
has final decision-making authority. Collaborations with
pharmaceutical or biotechnology companies and other third parties
often are terminated or allowed to expire by the other party. Any
such termination or expiration would adversely affect us
financially and could harm our business reputation.
We may not be successful in our efforts to identify or discover
additional product candidates, or we may expend our limited
resources to pursue a particular product candidate or indication
and fail to capitalize on product candidates or indications that
may be more profitable or for which there is a greater likelihood
of success.
The success of our business depends primarily upon our ability to
identify, develop and commercialize product candidates with
commercial and therapeutic potential. Although AV-101 is in Phase 2
clinical development for treatment of MDD, and we are planning for
Phase 2a studies of AV-101 for treatment of NP and LID, for Phase 3
development of PH94B for on-demand treatment of SAD, and a Phase 2b
study of PH10 for treatment of MDD, we may fail to pursue
additional development opportunities for AV-101, PH94B or PH10, or
identify additional product candidates for clinical development for
a number of reasons. Our research methodology may be unsuccessful
in identifying new product candidates or our product candidates may
be shown to have harmful side effects or may have other
characteristics that may make the products unmarketable or unlikely
to receive marketing approval.
Because we currently have limited financial and management
resources, we necessarily focus on a limited number of research and
development programs and product candidates and are currently
focused primarily on development of AV-101, PH94B and PH10, with
additional limited focus on NCE DR and, through a third-party
collaboration, RM. As a result, we may forego or delay pursuit of
opportunities with other product candidates or for other potential
CNS-related indications for AV-101, PH94B and/or PH10 that later
prove to have greater commercial potential. Our resource allocation
decisions may cause us to fail to capitalize on viable commercial
drugs or profitable market opportunities. Our spending on current
and future research and development programs and product candidates
for specific indications may not yield any commercially viable
drugs. If we do not accurately evaluate the commercial potential or
target market for a particular product candidate, we may relinquish
valuable rights to that product candidate through future
collaboration, licensing or other royalty arrangements in cases in
which it would have been more advantageous for us to retain sole
development and commercialization rights to such product
candidate.
If any of these events occur, we may be forced to abandon our
development efforts for a program or programs, which would have a
material adverse effect on our business and could potentially cause
us to cease operations. Research and development programs to
identify and advance new product candidates require substantial
technical, financial and human resources. We may focus our efforts
and resources on potential programs or product candidates that
ultimately prove to be unsuccessful.
We are subject to healthcare laws and regulations, which could
expose us to criminal sanctions, civil penalties, contractual
damages, reputational harm and diminished profits and future
earnings.
Although we do not currently have any products on the market, once
we begin commercializing our product candidates, we may be subject
to additional healthcare statutory and regulatory requirements and
enforcement by the federal government and the states and foreign
governments in which we conduct our business. Healthcare providers,
physicians and others will play a primary role in the
recommendation and prescription of our product candidates, if
approved. Our future arrangements with third-party payors will
expose us to broadly applicable fraud and abuse and other
healthcare laws and regulations that may constrain the business or
financial arrangements and relationships through which we market,
sell and distribute our product candidates, if we obtain marketing
approval. Restrictions under applicable federal and state
healthcare laws and regulations include the following:
|
●
|
The federal anti-kickback statute prohibits, among other things,
persons from knowingly and willfully soliciting, offering,
receiving or providing remuneration, directly or indirectly, in
cash or in kind, to induce or reward either the referral of an
individual for, or the purchase, order or recommendation of, any
good or service, for which payment may be made under federal
healthcare programs such as Medicare and Medicaid.
|
|
●
|
The federal False Claims Act imposes criminal and civil penalties,
including those from civil whistleblower or qui tam actions,
against individuals or entities for knowingly presenting, or
causing to be presented, to the federal government, claims for
payment that are false or fraudulent or making a false statement to
avoid, decrease, or conceal an obligation to pay money to the
federal government.
|
|
●
|
The federal Health Insurance Portability and Accountability Act of
1996, as amended by the Health Information Technology for Economic
and Clinical Health Act, imposes criminal and civil liability for
executing a scheme to defraud any healthcare benefit program and
also imposes obligations, including mandatory contractual terms,
with respect to safeguarding the privacy, security and transmission
of individually identifiable health information.
|
|
●
|
The federal false statements statute prohibits knowingly and
willfully falsifying, concealing or covering up a material fact or
making any materially false statement in connection with the
delivery of or payment for healthcare benefits, items or
services.
|
|
●
|
The federal transparency requirements, sometimes referred to as the
“Sunshine Act,” under the Patient Protection and
Affordable Care Act, require manufacturers of drugs, devices,
biologics and medical supplies that are reimbursable under
Medicare, Medicaid, or the Children’s Health Insurance
Program to report to the Department of Health and Human Services
information related to physician payments and other transfers of
value and physician ownership and investment
interests.
|
|
●
|
Analogous state laws and regulations, such as state anti-kickback
and false claims laws and transparency laws, may apply to sales or
marketing arrangements and claims involving healthcare items or
services reimbursed by non-governmental third-party payors,
including private insurers, and some state laws require
pharmaceutical companies to comply with the pharmaceutical
industry’s voluntary compliance guidelines and the relevant
compliance.
|
|
●
|
Guidance promulgated by the federal government in addition to
requiring drug manufacturers to report information related to
payments to physicians and other healthcare providers or marketing
expenditures and drug pricing.
|
|
●
|
Foreign
Corrupt Practices Act and its application to marketing and selling
practices as well as to clinical trials.
|
Ensuring that our future business arrangements with third parties
comply with applicable healthcare laws and regulations could be
costly. It is possible that governmental authorities will conclude
that our business practices do not comply with current or future
statutes, regulations or case law involving applicable fraud and
abuse or other healthcare laws and regulations. If our operations
were found to be in violation of any of these laws or any other
governmental regulations that may apply to us, we may be subject to
significant civil, criminal and administrative penalties, damages,
fines and exclusion from government funded healthcare programs,
such as Medicare and Medicaid, any of which could substantially
disrupt our operations. If any of the physicians or other providers
or entities with whom we expect to do business are found to be out
of compliance with applicable laws, they may be subject to
criminal, civil or administrative sanctions, including exclusions
from government funded healthcare programs.
The FDA and other regulatory agencies actively enforce the laws and
regulations prohibiting the promotion of off-label uses. If we are
found to have improperly promoted off-label uses, we may become
subject to significant liability.
The FDA and other regulatory agencies strictly regulate the
promotional claims that may be made about prescription products,
such as AV-101, PH94B and PH10, if approved. In particular, a
product may not be promoted for uses that are not approved by the
FDA or such other regulatory agencies as reflected in the
product’s approved labeling. For example, if we receive FDA
marketing approval for AV-101 as an adjunctive treatment of MDD,
physicians may prescribe AV-101 to their patients in a manner that
is inconsistent with the FDA-approved label. However, if we are
found to have promoted such off-label uses, we may become subject
to significant liability. The federal government has levied large
civil and criminal fines against companies for alleged improper
off-label promotion and has enjoined several companies from
engaging in off-label promotion. The FDA has also requested that
companies enter into consent decrees or imposed permanent
injunctions under which specified promotional conduct is changed or
curtailed. If we cannot successfully manage the promotion of our
product candidates, if approved, we could become subject to
significant liability, which would materially adversely affect our
business and financial condition.
Even if approved, reimbursement policies could limit our ability to
sell our product candidates.
Market acceptance and sales of our product candidates will depend
heavily on reimbursement policies and may be affected by healthcare
reform measures. Government authorities and third-party payors,
such as private health insurers and health maintenance
organizations, decide which medications they will pay for and
establish reimbursement levels for those medications. Cost
containment is a primary concern in the United States healthcare
industry and elsewhere. Government authorities and these
third-party payors have attempted to control costs by limiting
coverage and the amount of reimbursement for particular
medications. We cannot be sure that reimbursement will be available
for our product candidates and, if reimbursement is available, the
level of such reimbursement. Reimbursement may impact the demand
for, or the price of, our product candidates. If reimbursement is
not available or is available only at limited levels, we may not be
able to successfully commercialize our product
candidates.
In some foreign countries, particularly in Canada and European
countries, the pricing of prescription pharmaceuticals is subject
to strict governmental control. In these countries, pricing
negotiations with governmental authorities can take six months or
longer after the receipt of regulatory approval and product launch.
To obtain favorable reimbursement for the indications sought or
pricing approval in some countries, we may be required to conduct a
clinical trial that compares the cost-effectiveness of our product
candidates with other available therapies. If reimbursement for our
product candidates is unavailable in any country in which we seek
reimbursement, if it is limited in scope or amount, if it is
conditioned upon our completion of additional clinical trials, or
if pricing is set at unsatisfactory levels, our operating results
could be materially adversely affected.
We may seek FDA Orphan Drug designation for one or more of our
product candidates. Even if we have obtained FDA Orphan Drug
designation for a product candidate, there may be limits to the
regulatory exclusivity afforded by such designation.
We may, in the future, choose to seek FDA Orphan Drug designation
for one or more of our current or future product candidates. Even
if we obtain Orphan Drug designation from the FDA for a product
candidate, there are limitations to the exclusivity afforded by
such designation. In the U.S., the company that first obtains FDA
approval for a designated orphan drug for the specified rare
disease or condition receives orphan drug marketing exclusivity for
that drug for a period of seven years. This orphan drug exclusivity
prevents the FDA from approving another application, including a
full NDA to market the same drug for the same orphan indication,
except in very limited circumstances, including when the FDA
concludes that the later drug is safer, more effective or makes a
major contribution to patient care. For purposes of small molecule
drugs, the FDA defines “same drug” as a drug that
contains the same active moiety and is intended for the same use as
the drug in question. To obtain Orphan Drug status for a drug that
shares the same active moiety as an already approved drug, it must
be demonstrated to the FDA that the drug is safer or more effective
than the approved orphan designated drug, or that it makes a major
contribution to patient care. In addition, a designated orphan drug
may not receive orphan drug exclusivity if it is approved for a use
that is broader than the indication for which it received orphan
designation. In addition, orphan drug exclusive marketing rights in
the U.S. may be lost if the FDA later determines that the request
for designation was materially defective or if the manufacturer is
unable to assure sufficient quantity of the drug to meet the needs
of patients with the rare disease or condition or if another drug
with the same active moiety is determined to be safer, more
effective, or represents a major contribution to patient
care.
Our future growth may depend, in part, on our ability to penetrate
foreign markets, where we would be subject to additional regulatory
burdens and other risks and uncertainties.
Our future profitability may depend, in part, on our ability to
commercialize our product candidates in foreign markets for which
we may rely on collaboration with third parties. If we
commercialize our product candidates in foreign markets, we would
be subject to additional risks and uncertainties,
including:
|
●
|
our customers’ ability to obtain reimbursement for our
product candidates in foreign markets;
|
|
●
|
our inability to directly control commercial activities because we
are relying on third parties;
|
|
●
|
the burden of complying with complex and changing foreign
regulatory, tax, accounting and legal requirements;
|
|
●
|
different medical practices and customs in foreign countries
affecting acceptance in the marketplace;
|
|
●
|
import or export licensing requirements;
|
|
●
|
longer accounts receivable collection times;
|
|
●
|
longer lead times for shipping;
|
|
●
|
language barriers for technical training;
|
|
●
|
reduced protection of intellectual property rights, different
standards of patentability and different availability of prior art
in some foreign countries as compared with the U.S.;
|
|
●
|
the existence of additional potentially relevant third party
intellectual property rights;
|
|
●
|
foreign currency exchange rate fluctuations; and
|
|
●
|
the interpretation of contractual provisions governed by foreign
laws in the event of a contract dispute.
|
Foreign sales of our product candidates could also be adversely
affected by the imposition of governmental controls, political and
economic instability, trade restrictions and changes in
tariffs.
We are a development stage biopharmaceutical company with no
current revenues or approved products, and limited experience
developing new therapeutic product candidates, including conducting
clinical trials and other areas required for the successful
development and commercialization of therapeutic products, which
makes it difficult to assess our future viability.
We are a development stage biopharmaceutical company. Although we
have one drug candidate in Phase 2 development and are preparing to
advance another drug candidate into Phase 2 development and a third
drug candidate into pivotal Phase 3 clinical trials, we currently
have no approved products and currently generate no revenues, and
we have not yet fully demonstrated an ability to overcome many of
the fundamental risks and uncertainties frequently encountered by
development stage companies in new and rapidly evolving fields of
technology, particularly biotechnology. To execute our business
plan successfully, we will need to accomplish the following
fundamental objectives, either on our own or with
collaborators:
|
●
|
develop and obtain required regulatory approvals for
commercialization of AV-101, PH94B, PH10 and/or other product
candidates;
|
|
●
|
maintain, leverage and expand our intellectual property
portfolio;
|
|
●
|
establish and maintain sales, distribution and marketing
capabilities, and/or enter into strategic partnering arrangements
to access such capabilities;
|
|
●
|
gain market acceptance for our product candidates; and
|
|
●
|
obtain adequate capital resources and manage our spending as costs
and expenses increase due to research, production, development,
regulatory approval and commercialization of product
candidates.
|
Our future success is highly dependent upon our ability to
successfully develop and commercialize any of our current product
candidates, acquire or license additional product candidates, or
discover, as well as produce, develop and commercialize proprietary
DR NCEs using our stem cell technology, and we cannot provide any
assurance that we will successfully develop and commercialize
AV-101, PH94B, PH10 or acquire or license additional product
candidates or discover and develop DR NCEs, or that, if produced,
AV-101, PH94B, PH10 or any other product candidate will be
successfully commercialized.
Business development and research and development programs designed
to identify, acquire or license additional product candidates, or,
as the case may be, produce DR NCEs require substantial technical,
financial and human resources, whether or not any additional
product candidate is acquired or licensed or NCEs are ultimately
identified and produced.
In addition, we do not have a sales or marketing infrastructure,
and we, including our executive officers, do not have any
significant pharmaceutical sales, marketing or distribution
experience. We may seek to collaborate with others to develop and
commercialize AV-101, PH94B, PH10, drug rescue NCEs and/or other
product candidates if and when they are acquired and developed, or
we may seek to establish those commercial capabilities
ourselves. If we enter into arrangements with third
parties to perform sales, marketing and distribution services for
our products, the resulting revenues or the profitability from
these revenues to us are likely to be lower than if we had sold,
marketed and distributed our products ourselves. In addition, we
may not be successful entering into arrangements with third parties
to sell, market and distribute AV-101, PH94B, PH10, any drug rescue
NCEs or other product candidates or may be unable to do so on terms
that are favorable to us. We likely will have little
control over such third parties, and any of these third parties may
fail to devote the necessary resources and attention to sell,
market and distribute our products effectively. If we do
not establish sales, marketing and distribution capabilities
successfully, either on our own or in collaboration with third
parties, we will not be successful in commercializing our product
candidates.
We have limited operating history with respect to drug development,
including our anticipated focus on the identification and
acquisition of additional product candidates or the assessment of
potential DR NCEs and no operating history with respect to the
production of DR NCEs, and we may never be able to produce a
DRNCE.
If we are unable to develop and commercialize AV-101, PH94B,
PH10 or acquire or license additional product candidates, or
produce suitable DR NCEs, we may not be able to generate sufficient
revenues to execute our business plan, which likely would result in
significant harm to our financial position and results of
operations, which could adversely impact our stock
price.
With respect to DR, there are a number of factors, in addition to
the utility of
CardioSafe
3D, that may impact our ability to identify
and produce, develop or out-license and commercialize DR NCEs,
independently or with partners, including:
|
●
|
our ability to identify potential DR candidates in the public
domain, obtain sufficient quantities of them, and assess them using
our bioassay systems;
|
|
●
|
if we seek to rescue DR candidates that are not available to us in
the public domain, the extent to which third parties may be willing
to out-license or sell certain DR candidates to us on commercially
reasonable terms;
|
|
●
|
our medicinal chemistry collaborator’s ability to design and
produce proprietary DR NCEs based on the novel biology and
structure-function insight we provide
using
CardioSafe
3D;
and
|
|
●
|
financial resources available to us to develop and commercialize
lead DR NCEs internally, or, if we sell or out-license them to
partners, the resources such partners choose to dedicate to
development and commercialization of any DR NCEs they acquire or
license from us.
|
Even if we do acquire additional product candidates or produce
proprietary DR NCEs, we can give no assurance that we will be able
to develop and commercialize them as marketable drugs, on our own
or in collaboration with others. Before we generate any revenues
from AV-101, PH94B, PH10 or additional acquired or licensed
products candidates or any DR NCEs, we or our potential
collaborators must complete preclinical and clinical development
programs, submit clinical and manufacturing data to the FDA,
qualify a third party CMO, receive regulatory approval in one or
more jurisdictions, satisfy the FDA that our CMO is capable of
manufacturing the product in compliance with cGMP, build a
commercial organization, make substantial investments and undertake
significant marketing efforts ourselves or in partnership with
others. We are not permitted to market or promote any of our
product candidates before we receive regulatory approval from the
FDA or comparable foreign regulatory authorities, and we may never
receive such regulatory approval for any of our product
candidates.
If
CardioSafe
3D
fails to predict accurately
and efficiently the cardiac effects, both toxic and nontoxic, of DR
candidates and DR NCEs, then our DR programs will be adversely
affected.
Success of our subsidiary, VistaStem, is partly dependent on our
ability to use
CardioSafe
3D to identify and predict, accurately and
efficiently, the potential toxic and nontoxic cardiac effects of DR
candidates
and DR NCEs. If
CardioSafe
3D is not capable of providing
physiologically relevant and clinically predictive information
regarding human cardiac biology, our DR business will be adversely
affected.
CardioSafe
3D
may not be meaningfully more
predictive of the behavior of human cells than existing
methods.
DR drug rescue programs is highly dependent
upon
CardioSafe
3D being more accurate, efficient and
clinically predictive than long-established surrogate safety
models, including animal cells and live animals, and immortalized,
primary and transformed cells, currently used by pharmaceutical
companies and others. We cannot give assurance
that
CardioSafe
3D will be more efficient or accurate at
predicting the heart safety of new drug candidates than the testing
models currently used. If
CardioSafe
3D fails to provide a meaningful difference
compared to existing or new models in predicting the behavior of
human heart, respectively, their utility for DR will be limited and
our DR business will be adversely affected.
We may invest in producing DR NCEs for which there proves to be no
demand.
To generate revenue from our DR activities, we must produce
proprietary DR NCEs for which there proves to be demand within the
healthcare marketplace, and, if we intend to out-license a
particular DR NCE for development and commercialization prior to
market approval, then also among pharmaceutical companies and other
potential collaborators. However, we may produce DR NCEs for which
there proves to be no or limited demand in the healthcare market
and/or among pharmaceutical companies and others. If we
misinterpret market conditions, underestimate development costs
and/or seek to rescue the wrong DR candidates, we may fail to
generate sufficient revenue or other value, on our own or in
collaboration with others, to justify our investments, and our DR
business may be adversely affected.
We may experience difficulty in producing human cells and our
future stem cell technology research and development efforts may
not be successful within the timeline anticipated, if at
all.
Our hPSC technology is technically complex, and the time and
resources necessary to develop various human cell types and
customized bioassay systems, although not significant at present,
are difficult to predict in advance. We might decide to devote
significant additional personnel and financial resources to
research and development activities designed to expand, in the case
of DR, and explore, in the case of drug discovery and RM, potential
applications of our stem cell technology platform. In particular,
we may conduct exploratory nonclinical RM programs involving blood,
bone, cartilage, and/or liver cells. Although we and our
third-party collaborators have developed proprietary protocols to
produce multiple differentiated cell types, we could encounter
difficulties in differentiating and producing sufficient quantities
of particular cell types, even when following these proprietary
protocols. These difficulties could result in delays in production
of certain cells, assessment of certain DR candidates and DR NCEs,
design and development of certain human cellular assays and
performance of certain exploratory nonclinical RM studies. In the
past, our stem cell research and development projects have been
significantly delayed when we encountered unanticipated
difficulties in differentiating hPSCs into heart and liver cells.
Although we have overcome such difficulties in the past, we may
have similar delays in the future, and we may not be able to
overcome them or obtain any benefits from our future stem cell
technology research and development activities. Any delay or
failure by us, for example, to produce functional, mature blood,
bone, cartilage, and liver cells could have a substantial and
material adverse effect on our potential drug discovery, DR and RM
business opportunities and results of operations.
Restrictions on research and development involving human embryonic
stem cells and religious and political pressure regarding such stem
cell research and development could impair our ability to conduct
or sponsor certain potential collaborative research and development
programs and adversely affect our prospects, the market price of
our common stock and our business model.
Some of our research and development programs may involve the use
of human cells derived from our controlled differentiation of human
embryonic stem cells (
hESC
s). Some believe the use of hESCs gives rise to
ethical and social issues regarding the appropriate use of these
cells. Our research related to differentiation of hESCs may become
the subject of adverse commentary or publicity, which could
significantly harm the market price of our common stock. Although
now substantially less than in years past, certain political and
religious groups in the U.S. and elsewhere voice opposition to hESC
technology and practices. We may use hESCs derived from excess
fertilized eggs that have been created for clinical use
in
in
vitro
fertilization
(
IVF
) procedures and have been donated for research
purposes with the informed consent of the donors after a successful
IVF procedure because they are no longer desired or suitable for
IVF. Certain academic research institutions have adopted policies
regarding the ethical use of human embryonic tissue. These policies
may have the effect of limiting the scope of future collaborative
research opportunities with such institutions, thereby potentially
impairing our ability to conduct certain research and development
in this field that we believe is necessary to expand the DR
capabilities of our technology, which would have a material adverse
effect on our business.
The use of embryonic or fetal tissue in research (including the
derivation of hESCs) in other countries is regulated by the
government, and such regulation varies widely from country to
country. Government-imposed restrictions with respect to use of
hESCs in research and development could have a material adverse
effect on us by harming our ability to establish critical
collaborations, delaying or preventing progress in our research and
development, and causing a decrease in the market interest in our
stock.
The foregoing potential ethical concerns do not apply to our use of
induced pluripotent stem cells
(iPSC
s) because their derivation does not involve the
use of embryonic tissues.
We have assumed that the biological capabilities of iPSCs and hESCs
are likely to be comparable. If it is discovered that this
assumption is incorrect, our exploratory research and development
activities focused on potential regenerative medicine applications
of our stem cell technology platform could be harmed.
We may use both hESCs and iPSCs to produce human cells for our
customized
in vitro
assays for drug discovery and drug rescue
purposes. However, we anticipate that our future exploratory
research and development, if any, focused on potential regenerative
medicine applications of our stem cell technology platform
primarily will involve iPSCs. With respect to iPSCs, we believe
scientists are still somewhat uncertain about the clinical utility,
life span, and safety of such cells, and whether such cells differ
in any clinically significant ways from hESCs. If we discover that
iPSCs will not be useful for whatever reason for potential
regenerative medicine programs, this would negatively affect our
ability to explore expansion of our platform in that manner,
including, in particular, where it would be preferable to use iPSCs
to reproduce rather than approximate the effects of certain
specific genetic variations.
If we fail to comply with environmental, health and safety laws and
regulations, we could become subject to fines or penalties or incur
costs that could have a material adverse effect on the success of
our business.
We are subject to numerous environmental, health and safety laws
and regulations, including those governing laboratory procedures
and the handling, use, storage, treatment and disposal of hazardous
materials and wastes. Our operations involve the use of hazardous
and flammable materials, including chemicals and biological
materials. Our operations also produce hazardous waste products. We
generally contract with third parties for the disposal of these
materials and wastes. We cannot eliminate the risk of contamination
or injury from these materials. In the event of contamination or
injury resulting from our use of hazardous materials, we could be
held liable for any resulting damages, and any liability could
exceed our resources. We also could incur significant costs
associated with civil or criminal fines and penalties.
Although we maintain workers' compensation insurance to cover us
for costs and expenses we may incur due to injuries to our
employees resulting from the use of hazardous materials, this
insurance may not provide adequate coverage against potential
liabilities. We do not maintain insurance for environmental
liability or toxic tort claims that may be asserted against us in
connection with our storage or disposal of biological, hazardous or
radioactive materials.
In addition, we may incur substantial costs to comply with current
or future environmental, health and safety laws and regulations.
These current or future laws and regulations may impair our
research, development, or production efforts. Failure to comply
with these laws and regulations also may result in substantial
fines, penalties, or other sanctions, which could have a material
adverse effect on our operations.
To the extent our research and development activities involve using
iPSCs, we will be subject to complex and evolving laws and
regulations regarding privacy and informed consent. Many of these
laws and regulations are subject to change and uncertain
interpretation, and could result in claims, changes to our research
and development programs and objectives, increased cost of
operations or otherwise harm the Company.
To the extent that we pursue research and development activities
involving iPSCs, we will be subject to a variety of laws and
regulations in the U.S. and abroad that involve matters central to
such research and development activities, including obligations to
seek informed consent from donors for the use of their blood and
other tissue to produce, or have produced for us, iPSCs, as well as
state and federal laws that protect the privacy of such donors.
U.S. federal and state and foreign laws and regulations are
constantly evolving and can be subject to significant change. If we
engage in iPSC-related research and development activities in
countries other than the U.S., we may become subject to foreign
laws and regulations relating to human-subjects research and other
laws and regulations that are often more restrictive than those in
the U.S. In addition, both the application and interpretation of
these laws and regulations are often uncertain, particularly in the
rapidly evolving stem cell technology sector. Compliance with these
laws and regulations can be costly, can delay or impede our
research and development activities, result in negative publicity,
increase our operating costs, require significant management time
and attention and subject us to claims or other remedies, including
fines or demands that we modify or cease existing business
practices.
Legal, social and ethical concerns surrounding the use of iPSCs,
biological materials and genetic information could impair our
operations.
To the extent that our future stem cell research and development
activities involve the use of iPSCs and the manipulation of human
tissue and genetic information, the information we derive from such
iPSC-related research and development activities could be used in a
variety of applications, which may have underlying legal, social
and ethical concerns, including the genetic engineering or
modification of human cells, testing for genetic predisposition for
certain medical conditions and stem cell banking. Governmental
authorities could, for safety, social or other purposes, call for
limits on or impose regulations on the use of iPSCs and genetic
testing or the manufacture or use of certain biological materials
involved in our iPSC-related research and development programs.
Such concerns or governmental restrictions could limit our future
research and development activities, which could have a material
adverse effect on our business, financial condition and results of
operations.
Our human cellular bioassay systems and human cells we derive from
human pluripotent stem cells, although not currently subject to
regulation by the FDA or other regulatory agencies as biological
products or drugs, could become subject to regulation in the
future.
The human cells we produce from hPSCs and our customized bioassay
systems using such cells, including
CardioSafe
3D, are not currently sold, for research
purposes or any other purpose, to biotechnology or pharmaceutical
companies, government research institutions, academic and nonprofit
research institutions, medical research organizations or stem cell
banks, and they are not therapeutic procedures. As a result, they
are not subject to regulation as biological products or drugs by
the FDA or comparable agencies in other countries. However, if, in
the future, we seek to include human cells we derive from hPSCs in
therapeutic applications or product candidates, such applications
and/or product candidates would be subject to the FDA’s pre-
and post-market regulations. For example, if we seek to develop and
market human cells we produce for use in performing RM
applications, such as tissue engineering or organ replacement, we
would first need to obtain FDA pre-market clearance or approval.
Obtaining such clearance or approval from the FDA is expensive,
time-consuming and uncertain, generally requiring many years to
obtain, and requiring detailed and comprehensive scientific and
clinical data. Notwithstanding the time and expense, these efforts
may not result in FDA approval or clearance. Even if we were to
obtain regulatory approval or clearance, it may not be for the uses
that we believe are important or commercially
attractive.
Risks Related to Our Financial Position
We have incurred significant net losses since inception and we will
continue to incur substantial operating losses for the foreseeable
future. We may never achieve or sustain profitability, which would
depress the market price of our common stock and could cause you to
lose all or a part of your investment.
We have incurred significant net losses in each fiscal year since
our inception in 1998, including net losses of approximately $24.6
million and $14.3 million during our fiscal years ended March 31,
2019 and 2018, respectively. At March 31, 2019, we had an
accumulated deficit of approximately $181.1 million. We do not know
whether or when we will become profitable. Substantially all of our
operating losses have resulted from costs incurred in connection
with our research and development programs and from general and
administrative costs associated with our operations. We expect to
incur increasing levels of operating losses over the next several
years and for the foreseeable future. Our prior losses, combined
with expected future losses, have had and will continue to have an
adverse effect on our stockholders’ equity and working
capital. We expect our research and development expenses to
significantly increase in connection with nonclinical studies and
clinical trials of our product candidates. In addition, if we
obtain marketing approval for our product candidates, we may incur
significant sales, marketing and outsourced-manufacturing expenses
should we elect not to collaborate with one or more third parties
for such services and capabilities. As a public company, we incur
additional costs associated with operating as a public company. As
a result, we expect to continue to incur significant and increasing
operating losses for the foreseeable future. Because of the
numerous risks and uncertainties associated with developing
pharmaceutical products, we are unable to predict the extent of any
future losses or when we will become profitable, if at all. Even if
we do become profitable, we may not be able to sustain or increase
our profitability on a quarterly or annual basis.
Our ability to become profitable depends upon our ability to
generate revenues. To date, we have generated approximately $17.7
million in revenues, consisting of receipt of non-dilutive cash
payments from collaborators, sublicense revenue, and research and
development grant awards from the NIH. We have not yet
commercialized any product or generated any revenues from product
sales, and we do not know when, or if, we will generate any revenue
from product sales. We do not expect to generate significant
revenue unless and until we obtain marketing approval of, and begin
to experience sales of, AV-101, PH94B, PH10 or another future
product candidate, or we enter into one or more development and
commercialization agreements with respect to AV-101, PH94B, PH10 or
one or more other future product candidates. Our ability to
generate revenue depends on a number of factors, including, but not
limited to, our ability to:
|
●
|
initiate and successfully complete nonclinical and clinical trials
that meet their prescribed endpoints;
|
|
●
|
initiate and successfully complete all safety studies required to
obtain U.S. and foreign marketing approval for our product
candidates;
|
|
●
|
timely complete and compose successful regulatory submissions such
as NDAs or comparable documents for both the U.S. and foreign
jurisdictions;
|
|
●
|
commercialize our product candidates, if approved, by developing a
sales force or entering into collaborations with third parties for
sales and marketing capabilities; and
|
|
●
|
achieve market acceptance of our product candidates in the medical
community and with third-party payors.
|
Unless we enter into a commercialization collaboration or
partnership with respect to the commercialization of our product
candidates, we expect to incur significant sales and marketing
costs as we prepare to commercialize our product candidates. Even
if we initiate and successfully complete pivotal clinical trials of
our product candidates, and our product candidates are approved for
commercial sale, and despite expending these costs, our product
candidates may not be commercially successful. We may not achieve
profitability soon after generating product sales, if ever. If we
are unable to generate product revenue, we will not become
profitable and may be unable to continue operations without
continued funding.
We require additional financing to execute our business plan and
continue to operate as a going concern.
Our audited consolidated financial statements for the year ended
March 31, 2019 included elsewhere in this Annual Report on Form
10-K for the year ended March 31, 2019 (
Annual
Report
) were prepared assuming
we will continue to operate as a going concern, although we and our
auditors have indicated that our continuing losses and negative
cash flows from operations raise substantial doubt about our
ability to continue as such. Because we continue to experience net
operating losses, our ability to continue as a going concern is
subject to our ability to obtain necessary funding from outside
sources, including obtaining additional funding from this offering
as well as future sales of our securities or potentially obtaining
loans and grant awards from financial institutions and/or
government agencies where possible. Our continued net operating
losses increase the difficulty in completing such sales or securing
alternative sources of funding, and there can be no assurances that
we will be able to obtain any future funding on favorable terms or
at all. If we are unable to obtain sufficient financing from the
sale of our securities or from alternative sources, we may be
required to reduce, defer, or discontinue certain or all of our
research and development activities or we may not be able to
continue as a going concern.
Since our inception, most of our resources have been dedicated to
research and development of AV-101 and the DR capabilities of
VistaStem’s stem cell technology platform. In particular, we
have expended substantial resources on research and development of
methods and processes relating to the production of AV-101 API and
drug product, advancing AV-101 through IND-enabling preclinical
development, Phase 1 clinical safety studies, and into ongoing
Phase 2 clinical development, including preparation for and launch
of our ELEVATE Study, as well as research and development and
regulatory expenses related to the production of PH94B and PH10 and
our stem cell technology platform, including development
of
CardioSafe
3D for DR and our cardiac stem cell
technology for potential RM applications in connection with the
Bluerock Agreement, and we expect to continue to expend substantial
resources for the foreseeable future developing and commercializing
our product candidates on our own or in collaborations. These
expenditures will include costs associated with general and
administrative costs, facilities costs, research and development,
acquiring new technologies, manufacturing product candidates,
conducting nonclinical experiments and clinical trials and
obtaining regulatory approvals, as well as commercializing any
products approved for sale.
At March 31, 2019, we had cash and cash equivalents of
approximately $13.1 million. We do not believe this amount alone is
sufficient to enable us to fund our planned operations for at least
the twelve months following the issuance of the financial
statements included elsewhere in this Annual Report. We expect to
seek additional capital to produce PH94B study material, conduct
PH94B pivotal Phase 3 clinical trials, produce additional
AV-101 study material for future nonclinical and clinical studies,
conduct AV-101 Phase 3-enabling toxicology studies, conduct pivotal
Phase 3 clinical studies of AV-101 in MDD, conduct AV-101 Phase 2
studies in LID, MDD, NP and SI, produce PH10 study material and
conduct a Phase 2b clinical trial of PH10 in MDD, acquire or
license and conduct research and development of additional product
candidates and to fund our internal operations.
Further, we have no current source of revenue to sustain our
present activities, and we do not expect to generate revenue until,
and unless, we (i) out-license or sell a product candidate to a
third-party, (ii) enter into additional license arrangements
involving our stem cell technology, or (iii) obtain approval from
the FDA or other regulatory authorities and successfully
commercialize, on our own or through a future collaboration, one or
more of our product candidates.
As the outcome of our ongoing research and development activities,
including the outcome of ongoing and future anticipated clinical
trials is highly uncertain, we cannot reasonably estimate the
actual amounts necessary to successfully complete the development
and commercialization of our product candidates, on our own or in
collaboration with others. In addition, other unanticipated costs
may arise. As a result of these and other factors, we will need to
seek additional capital in the near term to meet our future
operating requirements, including capital necessary to develop,
obtain regulatory approval for, and to commercialize our product
candidates, and may seek additional capital in the event there
exists favorable market conditions or strategic considerations even
if we believe we have sufficient funds for our current or future
operating plans. We have completed in the past, and are currently
considering a range of potential financing transactions, including
public or private equity or debt financings, government or other
third-party funding, marketing and distribution arrangements and
other collaborations, strategic alliances and licensing
arrangements or a combination of these approaches, and we may
complete additional financing arrangements later in 2019 and
thereafter. Raising funds in the current economic environment may
present additional challenges. Even if we believe we have
sufficient funds for our current or future operating plans, we may
seek additional capital if market conditions are favorable or if we
have specific strategic considerations.
Our future capital requirements depend on many factors,
including:
●
the
number and characteristics of the product candidates we
pursue;
●
the
scope, progress, results and costs of researching and developing
our product candidates, and conducting preclinical and clinical
studies;
●
the
timing of, and the costs involved in, obtaining regulatory
approvals for our product candidates;
●
the
cost of commercialization activities if any of our product
candidates are approved for sale, including marketing, sales and
distribution costs;
●
the
cost of manufacturing our product candidates and any products we
successfully commercialize;
●
our
ability to establish and maintain strategic partnerships, licensing
or other collaborative arrangements and the financial terms of such
agreements;
●
market
acceptance of our product candidates;
●
the
effect of competing technological and market
developments;
●
our
ability to obtain government funding for our research and
development programs;
●
the
costs involved in obtaining, maintaining and enforcing patents to
preserve our intellectual property;
●
the
costs involved in defending against such claims that we infringe
third-party patents or violate other intellectual property rights
and the outcome of such litigation;
●
the
timing, receipt and amount of potential future licensee fees,
milestone payments, and sales of, or royalties on, our future
products, if any; and
●
the
extent to which we may acquire or invest in additional businesses,
product candidates and technologies.
Any
additional fundraising efforts will divert certain members of our
management team from their day-to-day activities, which may
adversely affect our ability to develop and commercialize our
product candidates. In addition, our ability to engage in certain
types of capital raising transactions may be limited by the Listing
Rules of the Nasdaq Stock Market and/or General Instruction I.B.6
of Form S-3 so long as the market value of our common stock held by
non-affiliates remains below $75 million. We cannot guarantee that
future financing will be available in sufficient amounts, in a
timely manner, or on terms acceptable to us, if at all. The terms
of any future financing may adversely affect the holdings or the
rights of our stockholders and the issuance of additional
securities, whether equity or debt, by us, or the possibility of
such issuance, may cause the market price of our shares to decline.
The sale of additional equity securities and the conversion,
exchange or exercise of certain of our outstanding securities will
dilute all of our stockholders. The incurrence of debt could result
in increased fixed payment obligations and we could be required to
agree to certain restrictive covenants, such as limitations on our
ability to incur additional debt, limitations on our ability to
acquire, sell or license intellectual property rights and other
operating restrictions that could adversely impact our ability to
conduct our business. We could also be required to seek funds
through arrangements with collaborative partners or otherwise at an
earlier stage than otherwise would be desirable and we may be
required to relinquish rights to some of our technologies or
product candidates or otherwise agree to terms unfavorable to us,
any of which may have a material adverse effect on our business,
operating results and prospects.
If we are unable to obtain additional funding on a timely basis and
on acceptable terms, we may be required to significantly curtail,
delay or discontinue one or more of our research or product
development programs or the commercialization of any product
candidate or be unable to continue or expand our operations or
otherwise capitalize on our business opportunities, as desired,
which could materially affect our business, financial condition and
results of operations.
We have identified
material weaknesses in our internal control over financial
reporting, and our business and stock price may be adversely
affected if we do not adequately address those weaknesses or if we
have other material weaknesses or significant deficiencies in our
internal control over financial reporting
.
We have identified material weaknesses in our internal control over
financial reporting. In particular, we concluded that (i) the size
and capabilities of our staff does not permit appropriate
segregation of duties to prevent one individual from overriding the
internal control system by initiating, authorizing and completing
all transactions, and (ii) we utilize accounting software that does
not prevent erroneous or unauthorized changes to previous reporting
periods and/or can be adjusted so as to not provide an adequate
auditing trail of entries made in the accounting
software.
T
he existence of one or more
material weaknesses or significant deficiencies could result in
errors in our financial statements, and substantial costs and
resources may be required to rectify any internal control
deficiencies. If we cannot produce reliable financial reports,
investors could lose confidence in our reported financial
information, we may be unable to obtain additional financing to
operate and expand our business and our business and financial
condition could be harmed.
Raising additional capital will cause substantial dilution to our
existing stockholders, may restrict our operations or require us to
relinquish rights, and may require us to seek stockholder approval
to authorize additional shares of our common stock.
We intend to pursue private and public equity offerings, debt
financings, strategic collaborations and licensing arrangements
during 2019 and beyond. To the extent that we raise additional
capital through the sale of common stock or securities convertible
or exchangeable into common stock, or to the extent, for strategic
purposes, we convert or exchange certain of our outstanding
securities into common stock, our current stockholders’
ownership interest in our company will be substantially diluted. In
addition, the terms of any such securities may include liquidation
or other preferences that materially adversely affect rights of our
stockholders. Debt financing, if available, would increase our
fixed payment obligations and may involve agreements that include
covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital
expenditures or declaring dividends. If we raise additional funds
through collaboration, strategic partnerships and licensing
arrangements with third parties, we may have to relinquish valuable
rights to our product candidates, our intellectual property, future
revenue streams or grant licenses on terms that are not favorable
to us.
Some of our programs have been partially supported by government
grant awards, which may not be available to us in the
future.
Since inception, we have received substantial funds under grant
award programs funded by state and federal governmental agencies,
such as the NIH, the NIH’s National Institute of Neurological
Disease and Stroke (
NINDS
) and the NIMH, and the California Institute for
Regenerative Medicine (
CIRM
). To fund a portion of our future research and
development programs, we may apply for additional grant funding
from such or similar governmental
organizations. However, funding by these governmental
organizations may be significantly reduced or eliminated in the
future for a number of reasons. For example, some programs are
subject to a yearly appropriations process in Congress. In
addition, we may not receive funds under future grants because of
budgeting constraints of the agency administering the program.
Therefore, we cannot assure you that we will receive any future
grant funding from any government organization or
otherwise. A restriction on the government funding
available to us could reduce the resources that we would be able to
devote to future research and development efforts. Such a reduction
could delay the introduction of new products and hurt our
competitive position.
Our ability to use net operating losses to offset future taxable
income is subject to certain limitations.
As of March 31, 2019, we had federal and state net operating
loss carryforwards of approximately $109.0 million and $63.6
million, respectively, which begin to expire in fiscal
2020. Under Section 382 of the Internal Revenue
Code of 1986, as amended (the
Code
), changes in our ownership may limit the amount
of our net operating loss carryforwards that could be utilized
annually to offset our future taxable income, if any. This
limitation would generally apply in the event of a cumulative
change in ownership of our company of more than 50% within a
three-year period. Any such limitation may significantly reduce our
ability to utilize our net operating loss carryforwards and tax
credit carryforwards before they expire. Any such limitation,
whether as the result of future offerings, prior private
placements, sales of our common stock by our existing stockholders
or additional sales of our common stock by us in the future, could
have a material adverse effect on our results of operations in
future years. We have not completed a study to assess whether an
ownership change for purposes of Section 382 has occurred, or
whether there have been multiple ownership changes since our
inception, due to the significant costs and complexities associated
with such study.
General Company-Related Risks
If we fail to attract and retain senior management and key
scientific personnel, we may be unable to successfully produce,
develop and commercialize our product candidates.
Our success depends in part on our continued ability to attract,
retain and motivate highly qualified management and scientific and
technical personnel. We are highly dependent upon our Chief
Executive Officer, President and Chief Scientific Officer, Chief
Medical Officer, Chief Financial Officer, and Vice President
– Corporate Development as well as our other employees,
consultants and scientific collaborators. As of the date of this
Annual Report, we have nine full-time employees, which may make us
more reliant on our individual employees than companies with a
greater number of employees. The loss of services of any of these
individuals could delay or prevent the successful development of
our product candidates or disrupt our administrative
functions.
Although we have not historically experienced unique difficulties
attracting and retaining qualified employees, we could experience
such problems in the future. For example, competition for qualified
personnel in the biotechnology and pharmaceuticals field is
intense. We will need to hire additional personnel should we elect
to expand our research and development and administrative
activities. We may not be able to attract and retain quality
personnel on acceptable terms.
In addition, we rely on a broad and diverse range of strategic
consultants and advisors, including manufacturing, nonclinical and
clinical development, and regulatory advisors, to assist us in
designing and implementing our research and development and
regulatory strategies and plans for our product candidates. Our
consultants and advisors may be employed by employers other than us
and may have commitments under consulting or advisory contracts
with other entities that may limit their availability to
us.
As we seek to advance development of our product candidates, we may
need to expand our research and development capabilities and/or
contract with third parties to provide these capabilities for us.
As our operations expand, we expect that we will need to manage
additional relationships with various strategic partners and other
third parties. Future growth will impose significant added
responsibilities on members of management. Our future financial
performance and our ability to develop and commercialize our
product candidates and to compete effectively will depend, in part,
on our ability to manage any future growth effectively. To that
end, we must be able to manage our research and development efforts
effectively and hire, train and integrate additional management,
administrative and technical personnel. The hiring, training and
integration of new employees may be more difficult, costly and/or
time-consuming for us because we have fewer resources than a larger
organization. We may not be able to accomplish these tasks, and our
failure to accomplish any of them could prevent us from
successfully growing the company.
If product liability lawsuits are brought against us, we may incur
substantial liabilities and may be required to limit
commercialization of our product candidates.
As we develop our product candidates. either on our own or in
collaboration with others, we will face inherent risks of product
liability as a result of the required clinical testing of such
product candidates, and will face an even greater risk if we or our
collaborators commercialize any such product candidates. For
example, we may be sued if AV-101, PH94B, PH10, any DR NCE, other
product candidate, or RM product candidate we develop allegedly
causes injury or is found to be otherwise unsuitable during product
testing, manufacturing, marketing or sale. Any such product
liability claims may include allegations of defects in
manufacturing, defects in design, a failure to warn of dangers
inherent in the product, negligence, strict liability, and a breach
of warranties. Claims could also be asserted under state consumer
protection acts. If we cannot successfully defend ourselves against
product liability claims, we may incur substantial liabilities or
be required to limit commercialization of our product candidates.
Even successful defense would require significant financial and
management resources. Regardless of the merits or eventual outcome,
liability claims may result in:
|
●
|
decreased demand for product candidates that we may
develop;
|
|
●
|
injury to our reputation;
|
|
●
|
withdrawal of clinical trial participants;
|
|
●
|
costs to defend the related litigation;
|
|
●
|
a diversion of management's time and our resources;
|
|
●
|
substantial monetary awards to trial participants or patients;
or
|
|
●
|
product recalls, withdrawals or labeling, marketing or promotional
restrictions.
|
Our inability to obtain and retain sufficient product liability
insurance at an acceptable cost to protect against potential
product liability claims could prevent or inhibit the
commercialization of products we develop. Although we maintain
general and product liability insurance, any claim that may be
brought against us could result in a court judgment or settlement
in an amount that is not covered, in whole or in part, by our
insurance or that is in excess of the limits of our insurance
coverage. Our insurance policies also have various exclusions, and
we may be subject to a product liability claim for which we have no
coverage. We will have to pay any amounts awarded by a court or
negotiated in a settlement that exceed our coverage limitations or
that are not covered by our insurance, and we may not have, or be
able to obtain, sufficient capital to pay such
amounts.
As a public company, we incur significant administrative workload
and expenses to comply with U.S. regulations and requirements
imposed by the Nasdaq Stock Market concerning corporate governance
and public disclosure.
As a public company with common stock listed on the Nasdaq Capital
Market, we must comply with various laws, regulations and
requirements, including certain provisions of the Sarbanes-Oxley
Act of 2002, as well as rules implemented by the SEC and the Nasdaq
Stock Market. Complying with these statutes, regulations and
requirements, including our public company reporting requirements,
continues to occupy a significant amount of the time of management
and involves significant accounting, legal and other expenses. Our
efforts to comply with these regulations are likely to result in
increased general and administrative expenses and management time
and attention directed to compliance activities.
Unfavorable global economic or political conditions could adversely
affect our business, financial condition or results of
operations.
Our results of operations could be adversely affected by global
political conditions, as well as general conditions in the global
economy and in the global financial and stock markets. Global
financial and political crises cause extreme volatility and
disruptions in the capital and credit markets. A severe or
prolonged economic downturn, such as the recent global financial
crisis, could result in a variety of risks to our business,
including, weakened demand for our product candidates and our
ability to raise additional capital when needed on acceptable
terms, if at all. A weak or declining economy could also strain our
suppliers, possibly resulting in supply disruption, or cause our
customers to delay making payments for our services. Any of the
foregoing could harm our business and we cannot anticipate all of
the ways in which the current economic climate and financial market
conditions could adversely impact our business.
We or the third parties upon whom we depend may be adversely
affected by natural disasters and our business continuity and
disaster recovery plans may not adequately protect us from a
serious disaster.
Natural disasters could severely disrupt our operations, and have a
material adverse effect on our business, results of operations,
financial condition and prospects. If a natural disaster, power
outage or other event occurred that prevented us from using all or
a significant portion of our headquarters, that damaged critical
infrastructure, such as the manufacturing facilities of our
third-party CMOs, or that otherwise disrupted operations, it may be
difficult or, in certain cases, impossible for us to continue our
business for a substantial period of time. The disaster recovery
and business continuity plans we have in place may prove inadequate
in the event of a serious disaster or similar event. We may incur
substantial expenses as a result of the limited nature of our
disaster recovery and business continuity plans, which could have a
material adverse effect on our business.
Our business and
operations would suffer in the event of cybersecurity or other
system failures. Our business depends on complex information
systems, and any failure to successfully maintain these systems or
implement new systems to handle our changing needs could result in
a material disruption of our product candidates’ development
programs or otherwise materially harm our
operations.
In the ordinary course of our business, we collect and store
sensitive data, including intellectual property, our proprietary
business information and that of our suppliers, as well as
personally identifiable information of employees. Similarly, our
third-party CROs, CMOs and other contractors and consultants
possess certain of our sensitive data. The secure maintenance of
this information is material to our operations and business
strategy. Despite the implementation of security measures, our
internal computer systems and those of our third-party CROs, CMOs
and other contractors and consultants are vulnerable to attacks by
hackers, damage from computer viruses, unauthorized access, breach
due to employee error, malfeasance or other disruptions, natural
disasters, terrorism and telecommunication and electrical failures.
Any such attack or breach could compromise our networks and the
information stored there could be accessed, publicly disclosed,
lost or stolen. The legislative and regulatory landscape for
privacy and data protection continues to evolve, and there has been
an increasing amount of focus on privacy and data protection issues
with the potential to affect our business, including recently
enacted laws in a majority of states requiring security breach
notification. Thus, any access, disclosure or other loss of
information, including our data being breached at our partners or
third-party providers, could result in legal claims or proceedings
and liability under laws that protect the privacy of personal
information, disruption of our operations, and damage to our
reputation, which could adversely affect our business.
While we have not experienced any such system failure, accident, or
security breach to date, if such an event were to occur and cause
interruptions in our operations, it could result in a material
disruption of our programs. For example, the loss of clinical trial
data for AV-101, PH94B, PH10 or other product candidates could
result in delays in our regulatory approval efforts and
significantly increase our costs to recover or reproduce the data.
To the extent that any disruption or security breach results in a
loss of or damage to our data or applications or other data or
applications relating to our technology or product candidates, or
inappropriate disclosure of confidential or proprietary
information, we could incur liabilities and the further development
of our product candidates could be delayed.
We may acquire businesses or product candidates, or form strategic
alliances, in the future, and we may not realize the benefits of
such acquisitions.
We may acquire additional businesses or product candidates, form
strategic alliances or create joint ventures with third parties
that we believe will complement or augment our existing business.
If we acquire businesses with promising markets or technologies, we
may not be able to realize the benefit of acquiring such businesses
if we are unable to successfully integrate them with our existing
operations and company culture. We may encounter numerous
difficulties in developing, manufacturing and marketing any new
product candidates resulting from a strategic alliance, licensing
transaction or acquisition that delay or prevent us from realizing
their expected benefits or enhancing our business. We cannot assure
you that, following any such acquisition or licensing transaction,
we will achieve the expected synergies to justify the
transaction.
Risks Related to Our Intellectual Property Rights
If we are unable to adequately protect our proprietary technology
or obtain and maintain issued patents that are sufficient to
protect our product candidates, others could compete against us
more directly, which would have a material adverse impact on our
business, results of operations, financial condition and
prospects.
We strive to protect and enhance the proprietary technologies that
we believe are important to our business, including seeking patents
intended to cover our product candidates, their compositions and
formulations, their methods of use and methods of manufacturing and
any other inventions we consider important to the development of
our business. We also rely on trade secrets to protect aspects of
our business that are not amenable to, or that we do not consider
appropriate for, patent protection.
Our success will depend significantly on our ability to obtain and
maintain patent and other proprietary protection for commercially
important technology, inventions and know-how related to our
business, to defend and enforce our patents, to preserve the
confidentiality of our trade secrets and to operate without
infringing the valid and enforceable patents and proprietary rights
of third parties. We also rely on know-how, continuing
technological innovation and in-licensing opportunities to develop,
strengthen and maintain the proprietary position of our product
candidates. We own and have licensed patents and patent
applications related to product candidates AV-101, PH94B, PH10 and
also to hPSC technology.
Although we own and have licensed issued and allowed patents and
patent applications relating to AV-101, PH94B and PH10 in the U.S.,
selected countries in the EU and other jurisdictions, we cannot yet
provide any assurances that any of our pending U.S. and additional
foreign patent applications will mature into issued patents and, if
they do, that any of our patents will include claims with a scope
sufficient to protect our product candidates or otherwise provide
any competitive advantage.
Moreover, other parties may have developed technologies that may be
related or competitive to our approach and may have filed or may
file patent applications and may have received or may receive
patents that may overlap or conflict with our patent properties,
for example, either by claiming the same methods or formulations or
by claiming subject matter that could dominate our patent position.
Such third-party patent positions may limit or even eliminate our
ability to obtain or maintain patent protection.
The uncertainty about adequate protection includes changes to the
patent laws through either legislative action to change statutory
patent law or court action that may reinterpret existing law in
ways affecting the scope or validity of issued patents. Moreover,
relevant laws differ from country-to-country.
The patent positions of biotechnology and pharmaceutical companies,
including our patent portfolio with respect to our product
candidates, involve complex legal and factual questions, and,
therefore, the issuance, scope, validity and enforceability of any
additional patent claims that we may obtain cannot be predicted
with certainty.
Our ability to obtain valid and enforceable patents depends in
large measure on whether the differences between our technology and
the prior art allow our inventions to be patentable over
relevant prior art. Such prior art includes scientific
publications, investment blogs, granted patents and published
patent applications. Patent uncertainty cannot be eliminated
because of the potential existence of other prior art about which
we are currently unaware that may be relevant to our patent
applications and patents, which may prevent a pending patent
application from being granted or result in an issued patent being
held invalid or unenforceable.
In addition, some patent-related uncertainty exists because of the
challenge in finding and addressing all of the relevant and
material prior art in the biotechnology and pharmaceutical
fields. For example, there are numerous reports in the scientific
literature of compounds that target similar cellular receptors as
certain of our product candidates or were evaluated in early (often
pre-clinical) studies. In addition, even some reports in the trade
press and public announcements made us us before the filing date of
our AV-101 patent applications mentioned that AV-101 was in
development for certain therapeutic purposes. For example, we
published a web post on the NIH clinical trials website prior to
our filing of our initial AV-101 patent applications, which
describes unit doses for a then future study, but does not mention
treatment of depression and does not provide any preclinical or
clinical study data relating to depression or any other medical
condition, disease or disorder. This post was not submitted to the
United States Patent and Trademark Office (
USPTO
) in our two granted U.S. patents related to (i)
unit dose formulations of AV-101 effective to treat depression and
(ii) methods of treating depression with AV-101, respectively.
However, it was submitted in our pending AV-101 patent applications
that make similar claims, and we are considering entering this web
post in the record of the aforementioned two issued U.S. patents.
Another source of uncertainty pertains to patent properties that
were in-licensed by us for which prior art submissions were under
the control of the licensor. We rely on these licensors to have
satisfied the relevant disclosure obligations.
In the event any previously published prior art is deemed to be
invalidating prior art, it may cause certain of our issued
patents to be invalid and/or unenforceable which would cause us to
lose at least part, and perhaps all, of the patent protection on
our product candidates. Such a loss of patent protection would have
a material adverse impact on our business.
Obtaining and maintaining our patent protection depends on
compliance with various procedural, document submission, fee
payment and other requirements imposed by governmental patent
agencies, and our patent protection could be reduced or eliminated
for non-compliance with these requirements.
The USPTO, the European Patent Office (
EPO
) and various other foreign governmental patent
agencies require compliance with a number of procedural,
documentary, fee payment and other provisions during the patent
process. There are situations in which noncompliance can result in
abandonment or lapse of a patent or patent application, resulting
in partial or complete loss of patent rights in the relevant
jurisdiction. In such an event, competitors might be able to enter
the market earlier than would otherwise have been the
case.
Even if patents do successfully issue, third parties may challenge
the validity, enforceability or scope of such issued patents or any
other issued patents we own or license, which may result in such
patents being narrowed, invalidated or held
unenforceable.
United States and foreign patents and patent applications may be
subject to various types of infringement and validity proceedings,
including interference proceedings,
ex parte
reexamination,
inter
partes
review proceedings,
supplemental examination and challenges in district court. Patents
may be subjected to opposition, post-grant review, invalidity
actions, or comparable proceedings lodged in various foreign, both
national and regional, patent offices or courts. These proceedings
could result in loss of the patent or denial of the patent
application or loss or reduction in the scope of one or more of the
claims of the patent or patent in such a way that they no longer
cover our product candidates or competitive
products.
Furthermore, though an issued patent is presumed valid and
enforceable, its issuance is not conclusive as to its validity or
its enforceability and it may not provide us with adequate
proprietary protection or competitive advantages against
competitors with similar products. Even if a patent issues and is
held to be valid and enforceable, competitors may be able to design
around our patents, for example, by using pre-existing or newly
developed technology. Other parties may develop and obtain patent
protection for more effective technologies, designs or
methods.
If we or one of our licensing partners initiated legal proceedings
against a third-party to enforce a patent covering one of our
product candidates, including patents related to AV-101, PH94B or
PH10, the defendant could counterclaim that the patent covering our
product candidate is invalid and/or unenforceable. In patent
litigation in the United States, defendant counterclaims alleging
invalidity and/or unenforceability are commonplace. Grounds for a
validity challenge include alleged failures to meet any of several
statutory requirements, including lack of novelty, obviousness or
non-enablement. Grounds for unenforceability assertions include
allegations that someone connected with prosecution of the patent
withheld relevant information from the USPTO or made a misleading
statement during prosecution. Third parties may also raise similar
claims before administrative bodies in the United States or abroad,
even outside the context of litigation. If a defendant were to
prevail on a legal assertion of invalidity and/or unenforceability,
we would lose at least part, and perhaps all, of the patent
protection on our product candidates. Such a loss of patent
protection would have a material adverse impact on our
business.
In addition, such patent-related proceedings may be costly. Thus,
any patent properties that we may own or exclusively license
ultimately may not provide commercially meaningful protection
against competitors. Furthermore, an adverse decision in an
interference proceeding can result in a third party receiving the
patent right sought by us, which in turn could affect our ability
to develop, market or otherwise commercialize our product
candidates.
We may not be able to prevent the unauthorized disclosure or use of
our technical knowledge or trade secrets by consultants, vendors,
or former or current employees. The laws of some foreign countries
do not protect our proprietary rights to the same extent as the
laws of the United States, and we may encounter significant
problems in protecting our proprietary rights in these countries.
If these developments were to occur, they could have a material
adverse effect on our sales.
Our ability to enforce our patent rights also depends on our
ability to detect infringement. It is difficult to detect
infringers who do not advertise the components or manufacturing
processes that are used in their products. Moreover, it may be
difficult or impossible to obtain evidence of infringement in a
competitor’s or potential competitor’s product. Any
litigation to enforce or defend our patent rights, even if we were
to prevail, could be costly and time-consuming and would divert the
attention of our management and key personnel from our business
operations. We may not prevail in any lawsuits that we initiate and
the damages or other remedies awarded if we were to prevail may not
be commercially meaningful.
In addition, proceedings to enforce or defend our patents could put
our patents at risk of being invalidated, held unenforceable, or
interpreted narrowly. Such proceedings could also provoke third
parties to assert claims against us, including that some or all of
the claims in one or more of our patents are invalid or otherwise
unenforceable. If any patents covering our product candidates are
invalidated or found unenforceable, our financial position and
results of operations would be materially and adversely impacted.
In addition, if a court found that valid, enforceable patents held
by third parties covered our product candidates, our financial
position and results of operations would also be materially and
adversely impacted.
Overall, the degree of future protection for our proprietary rights
is uncertain, and we cannot ensure that:
|
●
|
any issued patents related to AV-101, PH94B, PH10 or any
pending patent applications, if issued and challenged by others,
will include or maintain claims having a scope sufficient to
protect AV-101, PH94B, PH10 or any other products or product
candidates against generic or other competition, particularly
considering that any patent rights to these compounds
per se
have expired;
|
|
●
|
any of our pending patent applications will issue as patents at
all;
|
|
●
|
we will be able to successfully commercialize our product
candidates, if approved, before our relevant patents
expire;
|
|
●
|
we were the first to make the inventions covered by each of our
patents and pending patent applications;
|
|
●
|
we were the first to file patent applications for these
inventions;
|
|
●
|
others will not develop similar or alternative technologies that do
not infringe our patents;
|
|
●
|
others will not use pre-existing technology to effectively compete
against us;
|
|
●
|
any of our patents, if issued, will ultimately be found to be valid
and enforceable, including on the basis of prior art relating to
our patent applications and patents;
|
|
●
|
any patents currently held or issued to us in the future will
provide a basis for an exclusive market for our commercially viable
products, will provide us with any competitive advantages or will
not be challenged by third parties;
|
|
●
|
we will develop additional proprietary technologies or product
candidates that are separately patentable; or
|
|
●
|
our commercial activities or products will not infringe upon the
patents or proprietary rights of others.
|
We also rely upon unpatented trade secrets, unpatented know-how and
continuing technological innovation to develop and maintain our
competitive position, which we seek to protect, in part, by
confidentiality agreements with our employees and our collaborators
and consultants. It is possible that technology relevant to our
business will be independently developed by a person that is not a
party to such an agreement. Furthermore, if the
employees, collaborators and consultants who are parties to these
agreements breach or violate the terms of these agreements, we may
not discover or have adequate remedies for any such breach or
violation, and we could lose our trade secrets through such
breaches or violations. Further, our trade secrets could otherwise
become known or be independently discovered by our
competitors.
Third parties may initiate legal proceedings against us alleging
that we infringe their intellectual property rights, which may
prevent or delay our product development efforts and stop us from
commercializing candidate products or increase the costs of
commercializing them, if approved. Also, we may file counterclaims
or initiate other legal proceedings against third parties to
challenge the validity or scope of their intellectual property
rights, the outcomes of which also would be uncertain and could
have a material adverse effect on the success of our
business.
We cannot assure that our business, product candidates and methods
do not or will not infringe the patents or other intellectual
property rights of third parties. Third parties may initiate legal
proceedings against us or our licensors or collaborators alleging
that we or our licensors or collaborators infringe their
intellectual property rights. In addition, we or our licensors or
collaborators may file counterclaims in such proceedings or
initiate separate legal proceedings against third parties to
challenge the validity or scope of their intellectual property
rights, including in oppositions, interferences,
reexaminations,
inter partes
reviews or derivation proceedings
before the United States or other
jurisdictions.
Our success will depend in part on our ability to operate without
infringing the intellectual property and proprietary rights of
third parties. Success also will depend on our ability to prevail
in litigation if we are sued for infringement or to resolve
litigation matters with rights and at costs favorable to
us.
The pharmaceutical industry is characterized by extensive
litigation regarding patents and other intellectual property
rights. Other parties may allege that our product candidates or the
use of our technologies infringes patent claims or other
intellectual property rights held by them or that we are employing
their proprietary technology without authorization. As we continue
to develop and, if approved, commercialize our current product
candidates and future product candidates, competitors may claim
that our technology infringes their intellectual property rights as
part of their business strategies designed to impede our successful
commercialization. There may be third-party patents or patent
applications with claims to materials, formulations, methods of
manufacture or methods for treatment related to the use or
manufacture of our product candidates. Because patent applications
can take many years to issue, third parties may have currently
pending patent applications that later result in issued patents
that our product candidates may infringe, or that such third
parties assert are infringed by our technologies.
The foregoing types of proceedings can be expensive and
time-consuming and many of our own or our licensors’ or
collaborators’ adversaries in these proceedings may have the
ability to dedicate substantially greater resources to prosecuting
these legal actions than we or our licensors or collaborators
can. Our defense of litigation or other proceedings may fail
and, even if successful, may result in substantial costs and
distract our management and other employees. We may not be able to
prevent, alone or with our licensors, misappropriation of our
intellectual property rights, particularly in countries where the
laws may not protect those rights as fully as in the United States
or European Union.
The outcome of intellectual property litigation is subject to
uncertainties that cannot be adequately quantified in advance. The
coverage of patents is subject to interpretation by the courts, and
the interpretation is not always uniform. If we are sued for patent
infringement, we would need to demonstrate that our product
candidates, products or methods either do not infringe the patent
claims of the relevant patent or that the patent claims are
invalid, and we may not be able to do this. Even if we are
successful in these proceedings, we may incur substantial costs and
the time and attention of our management and scientific personnel
could be diverted in pursuing these proceedings, which could have a
material adverse effect on us. In addition, we may not have
sufficient financial resources to bring these actions to a
successful conclusion.
An unfavorable outcome in the foregoing kinds of proceedings could
require us or our licensors or collaborators to cease using the
related technology or developing or commercializing our product
candidates, or to attempt to license rights to it from the
prevailing party. Our business could be harmed if the prevailing
party does not offer us or our licensors or collaborators a license
on commercially reasonable terms or at all. Even if we or our
licensors or collaborators obtain a license, it may be
non-exclusive, thereby giving our competitors access to the same
technologies licensed to us or our licensors or
collaborators.
In addition, we could be found liable for monetary damages,
including treble damages and attorneys’ fees, if we are found
to have willfully infringed a patent. A finding of infringement
could prevent us from commercializing our product candidates or
force us to cease some of our business operations, which could
materially harm our business.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be
compromised by disclosure during this type of litigation. There
could also be public announcements of the results of hearings,
motions or other interim proceedings or developments. If securities
analysts or investors perceive these results to be negative, it
could have a material adverse effect on the price of our common
stock.
Patent and other types of intellectual property litigation can
involve complex factual and legal questions, and their outcomes are
uncertain. Any claim relating to intellectual property infringement
that is successfully asserted against us may require us to pay
substantial damages, including treble damages and attorney’s
fees if we are found to have willfully infringed a third
party’s patents, for past use of the asserted intellectual
property and royalties and other consideration going forward if we
are forced to take a license. In addition, if any such claim is
successfully asserted against us and we could not obtain such a
license, we may be forced to stop or delay developing,
manufacturing, selling or otherwise commercializing our product
candidates.
Patent litigation is costly and time-consuming. We may not have
sufficient resources to bring these actions to a successful
conclusion. Even if we are successful in these proceedings, we may
incur substantial costs and divert management time and attention in
pursuing these proceedings, which could have a material adverse
effect on us. If we are unable to avoid infringing the patent
rights of others, we may be required to seek a license, defend an
infringement action or challenge the validity of the patents in
court, or redesign our products.
In addition, intellectual property litigation or claims could force
us to do one or more of the following:
|
●
|
cease developing, selling or otherwise commercializing our product
candidates;
|
|
●
|
pay substantial damages for past use of the asserted intellectual
property;
|
|
●
|
obtain a license from the holder of the asserted intellectual
property, which license may not be available on reasonable terms,
if at all; and
|
|
●
|
in the case of trademark claims, redesign, or rename, some or all
of our product candidates to avoid infringing the intellectual
property rights of third parties, which may not be possible and,
even if possible, could be costly and time-consuming.
|
Any of these risks coming to fruition could have a material adverse
effect on our business, results of operations, financial condition
and prospects.
The Company may be subject to claims challenging the inventorship
or ownership of our patents and other intellectual
property.
We enter into confidentiality and intellectual property assignment
agreements with our employees, consultants, outside scientific
collaborators, sponsored researchers and other advisors. These
agreements generally provide that inventions conceived by the party
in the course of rendering services to us will be our exclusive
property. However, these agreements may not be honored and may not
effectively assign intellectual property rights to us. For example,
even if we have a consulting agreement in place with an academic
advisor pursuant to which such academic advisor is required to
assign any inventions developed in connection with providing
services to us, such academic advisor may not have the right to
assign such inventions to us, as it may conflict with his or her
obligations to assign their intellectual property to his or her
employing institution.
Litigation may be necessary to defend against these and other
claims challenging inventorship or ownership. If we fail in
defending any such claims, in addition to paying monetary damages,
we may lose valuable intellectual property rights, such as
exclusive ownership of, or right to use, valuable intellectual
property. Such an outcome could have a material adverse effect on
our business. Even if we are successful in defending against such
claims, litigation could result in substantial costs and be a
distraction to management and other employees.
We do not seek to protect our intellectual property rights in all
jurisdictions throughout the world and we may not be able to
adequately enforce our intellectual property rights even in the
jurisdictions where we seek protection.
Filing, prosecuting and defending patents on product candidates in
all countries and jurisdictions throughout the world is
prohibitively expensive, and our intellectual property rights in
some countries outside the U.S. could be less extensive than those
in the United States, assuming that rights are obtained in the U.S.
In addition, the laws of some foreign countries do not protect
intellectual property rights to the same extent as federal and
state laws in the U.S. Consequently, we may not be able to prevent
third parties from practicing our inventions in all countries
outside the U.S., or from selling or importing products made using
our inventions in and into the United States or other
jurisdictions. The statutory deadlines for pursuing patent
protection in individual foreign jurisdictions are based on the
priority date of each of our patent applications. For the pending
patent applications relating to AV-101, as well as for other of the
patent families that we own or license, the relevant statutory
deadlines have not yet expired. Thus, for each of the patent
families that we believe provide coverage for our lead product
candidates or technologies, we will need to decide whether and
where to pursue protection outside the U.S.
Competitors may use our technologies in jurisdictions where we do
not pursue and obtain patent protection to develop their own
products and further, may export otherwise infringing products to
territories where we have patent protection, but enforcement is not
as strong as that in the U.S. These products may compete with our
products and our patents or other intellectual property rights may
not be effective or sufficient to prevent them from competing. Even
if we pursue and obtain issued patents in particular jurisdictions,
our patent claims or other intellectual property rights may not be
effective or sufficient to prevent third parties from so
competing.
The laws of some foreign countries do not protect intellectual
property rights to the same extent as the laws of the U.S. Many
companies have encountered significant problems in protecting and
defending intellectual property rights in certain foreign
jurisdictions. The legal systems of some countries, particularly
developing countries, do not favor the enforcement of patents and
other intellectual property protection, especially those relating
to biotechnology and pharmaceuticals. This could make it difficult
for us to stop the infringement of our patents, if obtained, or the
misappropriation of our other intellectual property rights. For
example, many foreign countries have compulsory licensing laws
under which a patent owner must grant licenses to third parties
under certain circumstances. In addition, many countries limit the
enforceability of patents against third parties, including
government agencies or government contractors. In these countries,
patents may provide limited or no benefit. Patent protection must
ultimately be sought on a country-by-country basis, which is an
expensive and time-consuming process with uncertain outcomes.
Accordingly, we may choose not to seek patent protection in certain
countries, and we will not have the benefit of patent protection in
such countries.
An unfavorable outcome could require us or our licensors or
collaborators to cease using the related technology or developing
or commercializing our product candidates, or to attempt to license
rights to it from the prevailing party. Our business could be
harmed if the prevailing party does not offer us or our licensors
or collaborators a license on commercially reasonable terms or at
all. Even if we or our licensors or collaborators obtain a license,
it may be non-exclusive, thereby giving our competitors access to
the same technologies licensed to us or our licensors or
collaborators. In addition, we could be found liable for monetary
damages, including treble damages and attorneys’ fees, if we
are found to have willfully infringed a patent. A finding of
infringement could prevent us from commercializing our product
candidates or force us to cease some of our business operations,
which could materially harm our business.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be
compromised by disclosure during this type of litigation. There
could also be public announcements of the results of hearings,
motions or other interim proceedings or developments. If securities
analysts or investors perceive these results to be negative, it
could have a material adverse effect on the price of our common
stock.
Furthermore, proceedings to enforce our patent rights in foreign
jurisdictions could result in substantial costs and divert our
efforts and attention from other aspects of our business, could put
our patents at risk of being invalidated or interpreted narrowly,
could put our patent applications at risk of not issuing and could
provoke third parties to assert claims against us. We may not
prevail in any lawsuits that we initiate and the damages or other
remedies awarded, if any, may not be commercially meaningful.
Accordingly, our efforts to enforce our intellectual property
rights around the world may be inadequate to obtain a significant
commercial advantage from the intellectual property that we develop
or license.
We are dependent, in part, on licensed intellectual property. If we
were to lose our rights to licensed intellectual property, we may
not be able to continue developing or commercializing our product
candidates, if approved. If we breach any of the agreements under
which we license the use, development and commercialization rights
to our product candidates or technology from third parties or, in
certain cases, we fail to meet certain development or payment
deadlines, we could lose license rights that are important to our
business.
For our PH10, PH94B and certain stem cell technologies, we are a
party to a number of license agreements under which we are granted
rights to intellectual properties that are or could become
important to our business, and we expect that we may need to enter
into additional license agreements in the future. Our existing
license agreements impose, and we expect that future license
agreements will impose on us, various development, regulatory
and/or commercial diligence obligations, payment of fees,
milestones and/or royalties and other obligations. If we fail to
comply with our obligations under these agreements, or we are
subject to a bankruptcy, the licensor may have the right to
terminate the license, in which event we would not be able to
develop or market products, which could be covered by the license.
Our business could suffer, for example, if any current or future
licenses terminate, if the licensors fail to abide by the terms of
the license, if the licensed patents or other rights are found to
be invalid or unenforceable, or if we are unable to enter into
necessary licenses on acceptable terms.
As we have done previously, we may need to obtain licenses from
third parties to advance our research or allow commercialization of
our product candidates, and we cannot provide any assurances that
third-party patents do not exist that might be enforced against our
current product candidates or future products in the absence of
such a license. We may fail to obtain any of these licenses on
commercially reasonable terms, if at all. Even if we are able to
obtain a license, it may be non-exclusive, thereby giving our
competitors access to the same technologies licensed to us. In that
event, we may be required to expend significant time and resources
to develop or license replacement technology. If we are unable to
do so, we may be unable to develop or commercialize the affected
product candidates, which could materially harm our business and
the third parties owning such intellectual property rights could
seek either an injunction prohibiting our sales, or, with respect
to our sales, an obligation on our part to pay royalties and/or
other forms of compensation.
Licensing of intellectual property is of critical importance to our
business and involves complex legal, business and scientific
issues. Disputes may arise between us and our licensors regarding
intellectual property subject to a license agreement,
including:
|
●
|
the scope of rights granted under the license agreement and other
interpretation-related issues;
|
|
●
|
whether and the extent to which our technology and processes
infringe on intellectual property of the licensor that is not
subject to the licensing agreement;
|
|
●
|
our right to sublicense patent and other rights to third parties
under collaborative development relationships;
|
|
●
|
our diligence obligations with respect to the use of the licensed
technology in relation to our development and commercialization of
our product candidates, and what activities satisfy those diligence
obligations; and
|
|
●
|
the ownership of inventions and know-how resulting from the joint
creation or use of intellectual property by our licensors and us
and our partners.
|
If disputes over intellectual property that we have licensed
prevent or impair our ability to maintain our current licensing
arrangements on acceptable terms, we may be unable to successfully
develop and commercialize the affected product
candidates.
We have entered into several licenses, both in-license agreements
and out-license agreements, to support and leverage our various
stem cell technology-related programs. We may enter into additional
license(s) to third-party intellectual property that are necessary
or useful to our business. Our current licenses and any future
licenses that we may enter into impose various royalty payments,
milestone, and other obligations on us. For example, the licensor
may retain control over patent prosecution and maintenance under a
license agreement, in which case, we may not be able to adequately
influence patent prosecution or prevent inadvertent lapses of
coverage due to failure to pay maintenance fees. If we fail to
comply with any of our obligations under a current or future
license agreement, our licensor(s) may allege that we have breached
our license agreement and may accordingly seek to terminate our
license with them. In addition, future licensor(s) may decide to
terminate our license at will. Termination of any of our current or
future licenses could result in our loss of the right to use the
licensed intellectual property, which could materially adversely
affect our ability to develop and commercialize a product candidate
or product, if approved, as well as harm our competitive business
position and our business prospects.
In addition, if our licensors fail to abide by the terms of the
license, if the licensors fail to prevent infringement by third
parties, if the licensed patents or other rights are found to be
invalid or unenforceable, or if we are unable to enter into
necessary licenses on acceptable terms our business could
suffer.
Some intellectual property which we have licensed may have been
discovered through government funded programs and thus may be
subject to federal regulations such as “march-in”
rights, certain reporting requirements, and a preference for U.S.
industry. Compliance with such regulations may limit our exclusive
rights, subject us to expenditure of resources with respect to
reporting requirements, and limit our ability to contract with
non-U.S. manufacturers.
Some of the intellectual property rights we have licensed or will
license in the future may have been generated through the use of
U.S. government funding and may therefore be subject to certain
federal regulations. As a result, the U.S. government may have
certain rights to intellectual property embodied in our current or
future product candidates pursuant to the Bayh-Dole Act of 1980
(
Bayh-Dole
Act
). These U.S. government
rights in certain inventions developed under a government-funded
program include a non-exclusive, non-transferable, irrevocable
worldwide license to use inventions for any governmental
purpose.
In addition, the U.S. government has the right to require us to
grant exclusive, partially exclusive, or non-exclusive licenses to
any of these inventions to a third party if it determines that:
(i) adequate steps have not been taken to commercialize the
invention; (ii) government action is necessary to meet public
health or safety needs; or (iii) government action is
necessary to meet requirements for public use under federal
regulations (also referred to as “march-in rights”).
The U.S. government also has the right to take title to these
inventions if we fail, or the applicable licensor fails, to
disclose the invention to the government and fail to file an
application to register the intellectual property within specified
time limits. Also, the U.S. government may acquire title to these
inventions in any country in which a patent application is not
filed within specified time limits.
Intellectual property generated under a government funded program
is further subject to certain reporting requirements, compliance
with which may require us, or the applicable licensor, to expend
substantial resources. In addition, the U.S. government requires
that any products embodying the subject invention or produced
through the use of the subject invention be manufactured
substantially in the U.S. The manufacturing preference requirement
can be waived if the owner of the intellectual property can show
that reasonable but unsuccessful efforts have been made to grant
licenses on similar terms to potential licensees that would be
likely to manufacture substantially in the U.S. or that under the
circumstances domestic manufacture is not commercially feasible.
This preference for U.S. manufacturers may limit our ability to
contract with non-U.S. product manufacturers for products covered
by such intellectual property.
In the event we apply for additional U.S.government funding, and we
discover compounds or drug candidates as a result of such funding,
intellectual property rights to such discoveries may be subject to
the applicable provisions of the Bayh-Dole Act.
If we do not obtain additional protection under the Hatch-Waxman
Amendments and similar foreign legislation by extending the patent
terms and obtaining data exclusivity for our product candidates,
our business may be materially harmed.
In the U.S., depending upon the timing, duration and specifics of
FDA marketing approval of our product candidates, one or more of
the U.S.patents we own or license may be eligible for limited
patent term restoration under the Drug Price Competition and Patent
Term Restoration Act of 1984, referred to as the Hatch-Waxman
Amendments. The Hatch-Waxman Amendments permit a patent restoration
term of up to five years as compensation for patent term lost
during product development and the FDA regulatory review process.
However, we may not be granted an extension because of, for
example, failing to apply within applicable deadlines, failing to
apply prior to expiration of relevant patents or otherwise failing
to satisfy applicable requirements. For example, we may not be
granted an extension, for example, if the active ingredient of
AV-101, PH94B or PH10 is used in another drug company’s
product candidate and that product candidate is the first to obtain
FDA approval.
Moreover, the applicable time period or the scope of patent
protection afforded could be less than we request. If we are unable
to obtain patent term extension or restoration or the term of any
such extension is less than we request, our competitors may obtain
approval of competing products following our patent expiration, and
our ability to generate revenues could be materially adversely
affected.
Similar kinds of patent term and regulatory and data protection
periods are available outside of the U.S. We will pursue such
opportunities to extend the exclusivity of our products, but we
cannot predict the availability of such exclusivity pathways or
that we will be successful in pursuing them.
Changes in U.S
.
patent law
could diminish the value of patents in general, thereby impairing
our ability to protect our products.
As is the case with other pharmaceutical and biotechnology
companies, our success is heavily dependent on intellectual
property, particularly patents. Obtaining and enforcing patents in
the biotechnology industry involve both technological and legal
complexity, and is therefore costly, time-consuming and inherently
uncertain. In addition, the U.S.in recent years enacted and is
currently implementing wide-ranging patent reform legislation: the
Leahy-Smith America Invents Act, referred to as the America Invents
Act. The America Invents Act includes a number of significant
changes to U.S.patent law. These include provisions that affect the
way patent applications will be prosecuted and may also affect
patent litigation. It is not yet clear what, if any, impact the
America Invents Act will have on the operation of our business.
However, the America Invents Act and its implementation could
increase the uncertainties and costs surrounding the prosecution of
our patent applications and the enforcement or defense of any
patents that may issue from our patent applications, all of which
could have a material adverse effect on our business and financial
condition.
In addition, recent U.S.Supreme Court rulings have narrowed the
scope of patent protection available in certain circumstances and
weakened the rights of patent owners in certain situations. The
full impact of these decisions is not yet known. For example, on
March 20, 2012 in
Mayo Collaborative Services,
DBA Mayo Medical Laboratories, et al. v. Prometheus Laboratories,
Inc.
, the Court held that
several claims drawn to measuring drug metabolite levels from
patient samples and correlating them to drug doses were not
patentable subject matter. The decision appears to impact
diagnostics patents that merely apply a law of nature via a series
of routine steps and it has created uncertainty around the ability
to obtain patent protection for certain inventions. Additionally,
on June 13, 2013 in
Association for Molecular
Pathology v. Myriad Genetics, Inc
., the Court held that claims to isolated genomic
DNA are not patentable, but claims to complementary DNA molecules
are patent eligible because they are not a natural product. The
effect of the decision on patents for other isolated natural
products is uncertain.
Additionally, on March 4, 2014, the USPTO issued a memorandum
to patent examiners providing guidance for examining claims that
recite laws of nature, natural phenomena or natural products under
the Myriad and Prometheus decisions. This guidance did not limit
the application of Myriad to DNA but, rather, applied the decision
to other natural products. Further, in 2015,
in
Ariosa Diagnostics, Inc. v.
Sequenom, Inc
., the Court of
Appeals for the Federal Circuit held that methods for detecting
fetal genetic defects were not patent eligible subject matter.
Other more recent court decisions and related USPTO examination
guidelines must be taken into account, particularly as they relate
to changes in what types of inventions are eligible for patent
protection. Foreign patent and intellectual property laws also are
evolving and are not predictable as to their impact on the Company
and other biopharmaceutical companies.
In addition to increasing uncertainty regarding our ability to
obtain future patents, this combination of events has created
uncertainty with respect to the value of patents, once obtained.
Depending on these and other decisions by the U.S.Congress, the
federal courts and the USPTO, the laws and regulations governing
patents could change in unpredictable ways that would weaken our
ability to obtain new patents or to enforce any patents that may
issue in the future.
We may be subject to damages resulting from claims that we or our
employees have wrongfully used or disclosed alleged trade secrets
of their former employers.
Certain of our current employees have been, and certain of our
future employees may have been, previously employed at other
biotechnology or pharmaceutical companies, including our
competitors or potential competitors. We also engage advisors and
consultants who are concurrently employed at universities or who
perform services for other entities.
Although we are not aware of any claims currently pending or
threatened against us, we may be subject to claims that we or our
employees, advisors or consultants have inadvertently or otherwise
used or disclosed intellectual property, including trade secrets or
other proprietary information, of a former employer or other third
party. We have and may in the future also be subject to claims that
an employee, advisor or consultant performed work for us that
conflicts with that person’s obligations to a third party,
such as an employer, and thus, that the third party has an
ownership interest in the intellectual property arising out of work
performed for us. Litigation may be necessary to defend against
these claims. Even if we are successful in defending against these
claims, litigation could result in substantial costs and be a
distraction to management. If we fail in defending such claims, in
addition to paying monetary claims, we may lose valuable
intellectual property rights or personnel. A loss of key personnel
or their work product could hamper or prevent our ability to
commercialize our product candidates, which would materially
adversely affect our commercial development efforts.
Numerous factors may limit any potential competitive advantage
provided by our intellectual property rights.
The degree of future protection afforded by our intellectual
property rights is uncertain because intellectual property rights
have limitations, and may not adequately protect our business,
provide a barrier to entry against our competitors or potential
competitors, or permit us to maintain our competitive advantage.
Moreover, if a third party has intellectual property rights that
cover the practice of our technology, we may not be able to fully
exercise or extract value from our intellectual property rights.
The following examples are illustrative:
|
●
|
others may be able to develop and/or practice technology that is
similar to our technology or aspects of our technology but that is
not covered by the claims of patents, should such patents issue
from our patent applications;
|
|
●
|
we might not have been the first to make the inventions covered by
a pending patent application that we own;
|
|
●
|
we might not have been the first to file patent applications
covering an invention;
|
|
●
|
others may independently develop similar or alternative
technologies without infringing our intellectual property
rights;
|
|
●
|
pending patent applications that we own or license may not lead to
issued patents;
|
|
●
|
patents, if issued, that we own or license may not provide us with
any competitive advantages, or may be held invalid or unenforceable
or be narrowed, as a result of legal challenges by our
competitors;
|
|
●
|
third parties may compete with us in jurisdictions where we do not
pursue and obtain patent protection;
|
|
●
|
we may not be able to obtain and/or maintain necessary or useful
licenses on reasonable terms or at all; and
|
|
●
|
the patents of others may have an adverse effect on our
business.
|
Should any of these events occur, they could significantly harm our
business and results of operations.
With regard to our stem cell technology, if, instead of identifying
DR candidates based on information available to us in the public
domain, we seek to in-license DR candidates from biotechnology,
medicinal chemistry and pharmaceutical companies, academic,
governmental and nonprofit research institutions, including the
NIH, or other third parties, there can be no assurances that we
will obtain material ownership or economic participation rights
over intellectual property we may derive from such licenses or
similar rights to the DR NCEs that we may produce and develop. If
we are unable to obtain ownership or substantial economic
participation rights over intellectual property related to DR NCEs
we produce and develop, our DR business may be adversely
affected.
Risks Related to our Securities
If we fail to comply with the continued listing requirements of the
Nasdaq Capital Market, our common stock may be delisted and the
price of our common stock and our ability to access the capital
markets could be negatively impacted.
On June 17, 2019, we were notified by the Nasdaq Stock Market, LLC
(
Nasdaq
) that we were not in compliance with the minimum
bid price requirements set forth in Nasdaq Listing Rule
5550(a)(2) for continued listing on the Nasdaq Capital
Market. Nasdaq Listing Rule 5550(a)(2) requires listed
securities to maintain a minimum bid price of $1.00 per share, and
Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet
the minimum bid price requirement exists if the deficiency
continues for a period of 30 consecutive business days. The
notification provided that we had 180 calendar days, or until
December 16, 2019, to regain compliance with Nasdaq Listing
Rule 5550(a)(2). To regain compliance, the bid price of our common
stock must have a closing bid price of at least $1.00 per share for
a minimum of 10 consecutive business days. If we do not regain
compliance by December 16, 2019, an additional 180 days may be
granted to regain compliance, so long as we meet
the Nasdaq Capital Market continued listing requirements
(except for the bid price requirement) and
notify Nasdaq in writing of our intention to cure
the deficiency during the second compliance period. If we do not
qualify for the second compliance period or fail to regain
compliance during the second 180-day period,
then Nasdaq will notify us of its determination to delist
our common stock, at which point we will have an opportunity to
appeal the delisting determination to a hearings
panel.
No assurance can be given that we will meet applicable Nasdaq
continued listing standards. Failure to meet applicable Nasdaq
continued listing standards could result in a delisting of our
common stock, which could materially reduce the liquidity of our
common stock and result in a corresponding material reduction in
the price of our common stock. In addition, delisting could harm
our ability to raise capital through alternative financing sources
on terms acceptable to us, or at all, and may result in the
inability to advance our drug development programs, potential loss
of confidence by investors and employees, and fewer business
development opportunities.
Market volatility may affect our stock price and the value of your
investment.
The market price for our common stock, similar to other
biopharmaceutical companies, is likely to be highly volatile. The
market price of our common stock may fluctuate significantly in
response to a number of factors, most of which we cannot control,
including, among others:
|
●
|
plans for, progress of or results from nonclinical and clinical
development activities related to our product
candidates;
|
|
●
|
the failure of the FDA or other regulatory authority to approve our
product candidates;
|
|
●
|
announcements of new products, technologies, commercial
relationships, acquisitions or other events by us or our
competitors;
|
|
●
|
the success or failure of other CNS therapies;
|
|
●
|
regulatory or legal developments in the U.S. and other
countries;
|
|
●
|
announcements regarding our intellectual property
portfolio;
|
|
●
|
failure of our product candidates, if approved, to achieve
commercial success;
|
|
●
|
fluctuations in stock market prices and trading volumes of similar
companies;
|
|
●
|
general market conditions and overall fluctuations in U.S. equity
markets;
|
|
●
|
variations in our quarterly operating results;
|
|
●
|
changes in our financial guidance or securities analysts’
estimates of our financial performance;
|
|
●
|
changes in accounting principles;
|
|
●
|
our ability to raise additional capital and the terms on which we
can raise it;
|
|
●
|
sales or purchases of large blocks of our common stock, including
sales or purchases by our executive officers, directors and
significant stockholders;
|
|
●
|
establishment
of short positions by holders or non-holders of our stock or
warrants;
|
|
●
|
additions or departures of key personnel;
|
|
●
|
discussion of us or our stock price by the press and by online
investor communities; and
|
|
●
|
other risks and uncertainties described in these risk
factors.
|
Future sales and issuances of our common stock may cause our stock
price to decline.
Sales or issuances of a substantial number of shares of our common
stock in the public market, or the perception that such sales or
issuances are occurring or might occur, could significantly reduce
the market price of our common stock and impair our ability to
raise adequate capital through the sale of additional equity
securities.
The stock market in general, and small biopharmaceutical companies
like ours in particular, have frequently experienced significant
volatility in the market prices for securities that often has been
unrelated to the operating performance of the underlying companies.
These broad market and industry fluctuations may adversely affect
the market price of our common stock, regardless of our actual
operating performance. In certain situations in which the market
price of a stock has been volatile, holders of that stock have
instituted securities class action litigation against the company
that issued the stock. If any of our stockholders were to bring a
lawsuit against us, the defense and disposition of the lawsuit
could be costly and divert the time and attention of our management
and harm our operating results. Additionally, if the trading volume
of our common stock remains low and limited there will be an
increased level of volatility and you may not be able to generate a
return on your investment.
A portion of our total outstanding shares are restricted from
immediate resale but may be sold into the market in the near
future. Future sales of shares by existing stockholders could cause
our stock price to decline, even if our business is doing
well.
Sales of a substantial number of shares of our common stock in the
public market could occur at any time. These sales, or the
perception in the market that the holders of a large number of
shares intend to sell shares, could reduce the market price of our
common stock. Historically, there has been a limited public market
for shares of our common stock. Future sales and issuances of a
substantial number of shares of our common stock in the public
market, including shares issued upon the conversion of our Series A
Preferred, Series B Preferred or Series C Preferred, and the
exercise of outstanding options and warrants for common stock which
are issuable upon exercise, in the public market, or the perception
that these sales and issuances are occurring or might occur, could
significantly reduce the market price for our common stock and
impair our ability to raise adequate capital through the sale of
equity securities.
A limited number of institutional stockholders could limit your
ability to influence the outcome of key transactions, including
changes in control.
A limited number of institutional stockholders own a substantial
portion of our outstanding preferred stock, consisting of shares of
our Series A Preferred, Series B Preferred, and Series C Preferred,
all of which is convertible, at the option of the holders (but
subject to certain beneficial ownership restrictions), into a
substantial number of shares of our common
stock. Accordingly, should a few of these institutional
holders convert their shares of preferred stock into common stock,
such stockholders may exert influence over us and over the outcome
of any corporate actions requiring approval of holders of our
common stock, including the election of directors and amendments to
our organizational documents, such as increases in our authorized
shares of common stock, any merger, consolidation or sale of all or
substantially all of our assets or any other significant corporate
transactions. These stockholders may also delay or prevent a change
of control of the Company, even if such a change of control is
approved by our Board and would benefit our other stockholders.
Furthermore, the interests of such institutional stockholders may
not always coincide with your interests or the interests of other
common stockholders and an institutional holder may act in a manner
that advances its best interests and not necessarily those of other
stockholders.
If equity research analysts do not publish research or reports
about our business or if they issue unfavorable commentary or
downgrade our common stock, the price of our common stock could
decline.
The trading market for our common stock relies in part on the
research and reports that equity research analysts publish about us
and our business. We do not control these analysts. The price of
our common stock could decline if one or more equity research
analysts downgrade our common stock or if such analysts issue other
unfavorable commentary or cease publishing reports about us or our
business.
There may be additional issuances of shares of preferred stock in
the future.
Our Restated Articles of Incorporation, as amended
(the
Articles
), permit us to issue up to 10.0 million shares of
preferred stock. Our Board has authorized the issuance of (i)
500,000 shares of Series A Preferred, all of which shares are
issued and outstanding at March 31, 2019; (ii) 4.0 million shares
of Series B 10% Convertible Preferred stock, of which approximately
1.2 million shares remain issued and outstanding at March 31, 2019;
and (iii) 3.0 million shares of Series C Convertible Preferred
Stock, of which approximately 2.3 million shares are issued and
outstanding at March 31, 2019. Our Board could authorize the
issuance of additional series of preferred stock in the future and
such preferred stock could grant holders preferred rights to our
assets upon liquidation, the right to receive dividends before
dividends would be declared to holders of our common stock, and the
right to the redemption of such shares, possibly together with a
premium, prior to the redemption of the common stock. In the event
and to the extent that we do issue additional preferred stock in
the future, the rights of holders of our common stock could be
impaired thereby, including without limitation, with respect to
liquidation.
We do not intend to pay dividends on our common stock and,
consequently, our stockholders’ ability to achieve a return
on their investment will depend on appreciation in the price of our
common stock.
We have never declared or paid any cash dividend on our common
stock and do not currently intend to do so in the foreseeable
future. We currently anticipate that we will retain future earnings
for the development, operation and expansion of our business and do
not anticipate declaring or paying any cash dividends in the
foreseeable future. Therefore, the success of an investment in
shares of our common stock will depend upon any future appreciation
in their value. There is no guarantee that shares of our common
stock will appreciate in value or even maintain the price at which
our stockholders purchased them.
We incur significant costs to ensure compliance with corporate
governance, federal securities law and accounting
requirements.
We are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (
Exchange
Act
), which requires that we
file annual, quarterly and current reports with respect to our
business and financial condition, and the rules and regulations
implemented by the SEC, the Sarbanes-Oxley Act of 2002, the
Dodd-Frank Act, and the Public Company Accounting Oversight Board,
each of which imposes additional reporting and other obligations on
public companies. We have incurred and will continue to
incur significant costs to comply with these public company
reporting requirements, including accounting and related audit
costs, legal costs to comply with corporate governance requirements
and other costs of operating as a public company. These legal and
financial compliance costs will continue to require us to divert a
significant amount of resources that we could otherwise use to
achieve our research and development and other strategic
objectives.
The filing and internal control reporting requirements imposed by
federal securities laws, rules and regulations on companies that
are not “smaller reporting companies” under federal
securities laws are rigorous and, once we are no longer a smaller
reporting company, we may not be able to meet them, resulting in a
possible decline in the price of our common stock and our inability
to obtain future financing. Certain of these requirements may
require us to carry out activities we have not done previously and
complying with such requirements may divert management’s
attention from other business concerns, which could have a material
adverse effect on our business, results of operations, financial
condition and cash flows. Any failure to adequately comply with
applicable federal securities laws, rules or regulations could
subject us to fines or regulatory actions, which may materially
adversely affect our business, results of operations and financial
condition.
In addition, changing laws, regulations and standards relating to
corporate governance and public disclosure are creating uncertainty
for public companies, increasing legal and financial compliance
costs and making some activities more time consuming. These laws,
regulations and standards are subject to varying interpretations,
in many cases due to their lack of specificity, and, as a result,
their application in practice may evolve over time as new guidance
is provided by regulatory and governing bodies. This could result
in continuing uncertainty regarding compliance matters and higher
costs necessitated by ongoing revisions to disclosure and
governance practices. We will continue to invest resources to
comply with evolving laws, regulations and standards, however this
investment may result in increased general and administrative
expenses and a diversion of management’s time and attention
from revenue-generating activities to compliance activities. If our
efforts to comply with new laws, regulations and standards differ
from the activities intended by regulatory or governing bodies due
to ambiguities related to their application and practice,
regulatory authorities may initiate legal proceedings against us
and our business may be adversely affected.
The disclosures in this section are not required since we qualify
as a smaller reporting company.
Our corporate headquarters and laboratories are located at 343
Allerton Avenue, South San Francisco, California 94080, where we
occupy approximately 10,900 square feet of office and lab space
under a lease expiring on July 31, 2022. We believe that our
facilities are suitable and adequate for our current and
foreseeable needs.
None.
Not applicable.
P
ART II
Item
5. Market for Registrant’s Common Equity,
Rel
ated Stockholder Matters and
Issuer Purchases of Equity Securities
Market Information
Our common stock was approved for listing and has traded since May
11, 2016 on The Nasdaq Capital Market under the symbol
“VTGN”. From June 21, 2011 through May 10, 2016, our
common stock traded on the OTC Marketplace, under the symbol
“VSTA”. There was no established trading
market for our common stock prior to June 21, 2011.
Shown
below is the range of high and low sales prices for our common
stock for the periods indicated as reported by the Nasdaq Capital
Market.
The market quotations
reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not necessarily represent actual
transactions.
|
|
High
|
Low
|
|
Year
Ending March 31, 2019
|
|
|
|
First quarter
ending June 30, 2018
|
$
1.76
|
$
0.81
|
|
Second quarter
ended September 30, 2018
|
$
1.53
|
$
1.20
|
|
Third quarter ended
December 31, 2018
|
$
2.44
|
$
1.26
|
|
Fourth quarter
ended March 31, 2019
|
$
1.86
|
$
1.05
|
|
|
|
|
|
Year
Ending March 31, 2018
|
|
|
|
First quarter
ending June 30, 2017
|
$
2.40
|
$
1.72
|
|
Second quarter
ended September 30, 2017
|
$
2.05
|
$
1.53
|
|
Third quarter ended
December 31, 2017
|
$
2.65
|
$
0.69
|
|
Fourth quarter
ended March 31, 2018
|
$
1.79
|
$
0.86
|
On June
24, 2019 the
closing price of our common stock on the Nasdaq Capital Market was
$0.7544
per
share.
As of June
24, 2019, we
had
42,622,965
shares of common stock outstanding and
approximately 6,000 stockholders of record. On the same
date, two stockholders held all 500,000 outstanding restricted
shares of our Series A Preferred Stock, which shares are
convertible into 750,000 shares of common stock; two stockholders
held 1,160,240 outstanding shares of our Series B 10% Convertible
Preferred Stock, which shares are convertible into 1,160,240 shares
of common stock; and one stockholder held all 2,318,012 outstanding
shares of our Series C Preferred stock, which shares are
convertible into 2,318,012 shares of common
stock.
Dividend Policy
We have never paid or declared any cash dividends on our common
stock, and we do not anticipate paying any cash dividends on
our common stock in the foreseeable future. Our Series B
Preferred accrues dividends at a rate of 10% per annum, which
dividends are payable solely in unregistered shares of our common
stock at the time the Series B Preferred is converted into common
stock.
Recent Sales of Unregistered Securities
None.
The disclosures in this section are not required because we qualify
as a smaller reporting company under federal securities
laws.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K (Annual Report) includes
forward-looking statements. All statements contained in this Annual
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 additional financing, the results
of our research and development efforts, the results of
non-clinical and clinical testing, the effect of regulation by the
United States 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 Annual
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 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 Annual
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 Annual Report or to conform these statements to actual
results or revised expectations. If we do update one or more
forward-looking statements, no inference should be drawn that we
will make additional updates with respect to those or other
forward-looking statements.
Business Overview
We are a clinical-stage biopharmaceutical company committed to
developing and commercializing new generation medicines to treat
diseases and disorders of the central nervous system
(
CNS
) with high unmet need. Our portfolio of three
clinical-stage product candidates is currently focused
predominantly on major depressive disorder (
MDD
) and social anxiety disorder (
SAD
).
MDD is a serious neurobiologically-based mood disorder, affecting
approximately 16 million adults in the United States, according to
the U.S. National Institutes of Health (
NIH
). Individuals diagnosed with MDD exhibit
depressive symptoms, such as a depressed mood or a loss of interest
or pleasure in daily activities, for more than a two-week period,
as well as impaired social, occupational, educational or other
important functioning which has a negative impact on their quality
of life. Globally, MDD affects nearly 300 million people of all
ages and is the leading cause of disability
worldwide.
SAD affects as many as 15 million Americans and is the third most
common psychiatric condition after depression and substance abuse.
SAD is characterized by a persistent and unreasonable fear of one
or more social or performance situations, where the individual
fears that he or she will act in a way or show symptoms that will
be embarrassing or humiliating, leading to avoidance of the
situations when possible and anxiety or distress when they occur.
These fears have a significant impact on the person's employment,
social activities and overall quality of life. Only three drugs,
all antidepressants, are approved by the U.S Food and Drug
Administration (
FDA
) for treatment of SAD. However, for treatment of
both MDD and SAD, current oral antidepressants (
ADs
) have slow onset of effect (often several weeks
to months) and significant side effects that may make them
inadequate treatment alternatives for many individuals affected by
MDD and SAD.
Our most advanced product candidate, PH94B neuroactive nasal spray,
is fundamentally different from all current treatments for SAD.
Developed from proprietary compounds called pherines and
administered as a nasal spray, PH94B activates nasal chemosensory
receptors that trigger neural circuits in the brain that suppress
fear and anxiety. In a published double-blind, placebo-controlled
Phase 2 clinical trial, PH94B neuroactive nasal spray was
significantly more effective than placebo in reducing
public-speaking and social interaction anxiety on laboratory
challenges of individuals with SAD.
Its
novel mechanism of pharmacological action, rapid-onset of
therapeutic effects and exceptional safety and tolerability profile
in clinical trials to date make PH94B neuroactive nasal spray an
excellent product candidate with potential to become the first
FDA-approved on-demand, as-needed, or PRN, treatment for
SAD.
AV-101 (4-Cl-KYN), one of our two product candidates for MDD,
belongs to a new generation of investigational medicines in
neuropsychiatry and neurology known as NMDA (N-methyl-D-aspartate)
glutamate receptor modulators. The NMDA receptor is a pivotal
receptor in the brain and abnormal NMDA function is associated with
multiple CNS diseases and disorders, including MDD, chronic
neuropathic pain, epilepsy, Parkinson's disease levodopa-induced
dyskinesia and many others. AV-101 is an oral prodrug of 7-Cl-KYNA
which binds uniquely at the glycine site of the NMDA receptor and
has potential to be a new at-home treatment for MDD. AV-101 is
currently in Phase 2 development in the U.S. for MDD. ELEVATE is
our Phase 2 multicenter, multi-dose, double blind,
placebo-controlled clinical study to evaluate the efficacy and
safety of AV-101 as an add-on treatment for MDD in adult patients
with an inadequate therapeutic response to current FDA-approved ADs
(the
ELEVATE
Study
). Dr. Maurizio Fava,
Professor of Psychiatry at Harvard Medical School and Director,
Division of Clinical Research, Massachusetts General Hospital
(
MGH
) Research Institute, is the Principal
Investigator of the ELEVATE Study assisting our internal team,
which is led by Mark Smith, MD, PhD, our Chief Medical
Officer. Dr. Fava was the co-Principal Investigator with Dr.
A. John Rush of the STAR*D study, the largest clinical trial
conducted in depression to date, whose findings were published in
journals such as the
New England Journal of
Medicine
(
NEJM
) and the
Journal of the American
Medical Association
(
JAMA
). We currently anticipate top line results from
the ELEVATE Study in the second half of 2019. The FDA has granted
Fast Track designation for development of AV-101 as a potential
add-on treatment of MDD.
Our other product candidate for MDD in Phase 2 development for MDD
is PH10 neuroactive nasal spray. PH10 is a potential
first-in-class, CNS neurosteroid nasal spray administered in
microgram doses for MDD. PH10 nasal spray activates nasal
chemosensory receptors that, in turn, engage GABA
(gamma-aminobutyric acid) and CRH (corticotropin-releasing hormone)
neurons in the limbic amygdala system. The activation of these
neural circuits is believed to have the potential to lead to rapid
antidepressant effects without psychological side effects, systemic
exposure or safety concerns often associated with current
antidepressants. Based on positive results of a small exploratory
Phase 2a study in MDD in which rapid-onset antidepressant effects
were observed without psychological side effects or systemic
exposure, we are preparing for planned Phase 2b clinical
development of PH10 as a first-line treatment for MDD.
Additional potential indications for PH94B include post-tramautic
stress disorder (PTSD) and general anxiety disorder
(
GAD
) and others neuropsychiatric indications.
Additional potential indications for AV-101 include as a
non-addictive, non-sedating treatment of chronic neuropathic pain
(
CNP
), epilepsy, and to reduce dyskinesia induced by
levodopa therapy for Parkinson’s disease (
PD LID
).
In addition to our CNS business, we have two pipeline-enabling
programs through our wholly-owned subsidiary, VistaStem
Therapeutics (
VistaStem
). VistaStem is focused on applying pluripotent
stem cell (
hPSC
) technology to discover, rescue, develop and
commercialize proprietary new chemical entities
(
NCEs
)
for CNS and other diseases and regenerative medicine
(
RM
) involving hPSC-derived blood, cartilage, heart
and liver cells. Our internal drug rescue programs are designed to
utilize
CardioSafe
3D
, our customized cardiac
bioassay system, to discover and develop small molecule NCEs for
our CNS pipeline or for out-licensing. To advance potential RM
applications of our cardiac stem cell technology, we have
sublicensed to BlueRock Therapeutics LP, a next generation cell
therapy and RM company established by Bayer AG and Versant Ventures
(
BlueRock
Therapeutics
), rights to
certain proprietary technologies relating to the production of
cardiac stem cells for the treatment of heart disease
(the
BlueRock
Agreement
). In a manner
similar to the BlueRock Agreement, we may pursue additional
collaborations or licensing transactions involving blood,
cartilage, and/or liver cells derived from hPSCs for cell-based
therapy, cell repair therapy, RM and/or tissue
engineering.
Critical Accounting Policies and Estimates
We consider certain accounting policies related to revenue
recognition, impairment of long-lived assets, research and
development, stock-based compensation, warrant liability and income
taxes to be critical accounting policies that require the use of
significant judgments and estimates relating to matters that are
inherently uncertain and may result in materially different results
under different assumptions and conditions. The preparation of
financial statements in conformity with United States generally
accepted accounting principles (
GAAP
) requires us to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes to the consolidated financial statements. These
estimates include useful lives for property and equipment and
related depreciation calculations, and assumptions for valuing
options, warrants and other stock-based compensation. Our actual
results could differ from these estimates.
Revenue Recognition
We have historically generated revenue principally from
collaborative research and development arrangements, licensing and
technology access fees and government grants.
We adopted
Accounting Standards Update (
ASU
) No. 2014-09,
Revenue from Contracts with Customers (Topic
606)
and its related amendments, collectively referred to as
ASC (
Accounting Standards
Codification
) Topic 606, as of April 1, 2018, using the
modified retrospective transition method. At adoption and
currently, we have only the BlueRock Agreement as a potential
revenue generating arrangement. Upon adoption of ASC Topic 606,
there was no change to the units of accounting previously
identified with respect to the BlueRock Agreement under legacy
GAAP, which are now considered performance obligations under ASC
Topic 606, and there was no change to the revenue recognition
pattern for the performance obligation. Accordingly, there was no
cumulative effect change to our opening accumulated deficit balance
upon the adoption of ASC Topic 606. We did not recognize any
revenue in our fiscal years ended March 31, 2019 or
2018.
Under
ASC Topic 606, we recognize revenue when our customer obtains
control of promised goods or services, in an amount that reflects
the consideration that we expect to receive in exchange for those
goods or services. To determine revenue recognition for
arrangements that we determine are within the scope of Topic 606,
we perform the following five steps: (i) identify the contract with
a customer; (ii) identify the performance obligations in the
contract; (iii) determine the transaction price, including variable
consideration, if any; (iv) allocate the transaction price to the
performance obligations in the contract; and (v) recognize revenue
when (or as) we satisfy a performance obligation. We only apply the
five-step model to contracts when it is probable that we will
collect the consideration to which we are entitled in exchange for
the goods or services we transfer to a customer.
Once a
contract is determined to be within the scope of Topic 606, we
assesses the goods or services promised within each contract and
determine those that are performance obligations. Arrangements that
include rights to additional goods or services that are exercisable
at a customer’s discretion are generally considered options.
We assess whether these options provide a material right to the
customer and if so, they are considered performance obligations.
The exercise of a material right may be accounted for as a contract
modification or as a continuation of the contract for accounting
purposes.
We
assess whether each promised good or service is distinct for the
purpose of identifying the performance obligations in the contract.
This assessment involves subjective determinations and requires
judgments about the individual promised goods or services and
whether such are separable from the other aspects of the
contractual relationship. Promised goods and services are
considered distinct provided that: (i) the customer can benefit
from the good or service either on its own or together with other
resources that are readily available to the customer (that is, the
good or service is capable of being distinct) and (ii) our promise
to transfer the good or service to the customer is separately
identifiable from other promises in the contract (that is, the
promise to transfer the good or service is distinct within the
context of the contract). In assessing whether a promised good or
service is distinct in the evaluation of a collaboration
arrangement subject to Topic 606, we consider factors such as the
research, manufacturing and commercialization capabilities of the
collaboration partner and the availability of the associated
expertise in the general marketplace. We also consider the intended
benefit of the contract in assessing whether a promised good or
service is separately identifiable from other promises in the
contract. If a promised good or service is not distinct, we are
required to combine that good or service with other promised goods
or services until we identifies a bundle of goods or services that
is distinct.
The
transaction price is then determined and allocated to the
identified performance obligations in proportion to their
standalone selling prices (
SSP
) on a relative SSP basis. SSP is
determined at contract inception and is not updated to reflect
changes between contract inception and satisfaction of the
performance obligations. Determining the SSP for performance
obligations requires significant judgment. In developing the SSP
for a performance obligation, we consider applicable market
conditions and relevant Company-specific factors, including factors
that were contemplated in negotiating the agreement with the
customer and estimated costs. In certain circumstances, we may
apply the residual method to determine the SSP of a good or service
if the standalone selling price is considered highly variable or
uncertain. We validate the SSP for performance obligations by
evaluating whether changes in the key assumptions used to determine
the SSP will have a significant effect on the allocation of
arrangement consideration between multiple performance
obligations.
If the
consideration promised in a contract includes a variable amount, we
estimate the amount of consideration to which we will be entitled
in exchange for transferring the promised goods or services to a
customer. We determine the amount of variable consideration by
using the expected value method or the most likely amount method.
We include the unconstrained amount of estimated variable
consideration in the transaction price. The amount included in the
transaction price is constrained to the amount for which it is
probable that a significant reversal of cumulative revenue
recognized will not occur. At the end of each subsequent reporting
period, we re-evaluate the estimated variable consideration
included in the transaction price and any related constraint, and
if necessary, adjust our estimate of the overall transaction price.
Any such adjustments are recorded on a cumulative catch-up basis in
the period of adjustment.
If an
arrangement includes development and regulatory milestone payments,
we evaluate whether the milestones are considered probable of being
reached and estimate the amount to be included in the transaction
price using the most likely amount method. If it is probable that a
significant revenue reversal would not occur, the associated
milestone value is included in the transaction price. Milestone
payments that are not within our control or the licensee’s
control, such as regulatory approvals, are generally not considered
probable of being achieved until those approvals are
received.
In
determining the transaction price, we adjust consideration for the
effects of the time value of money if the timing of payments
provides us with a significant benefit of financing. We do not
assess whether a contract has a significant financing component if
the expectation at contract inception is such that the period
between payment by the licensee and the transfer of the promised
goods or services to the licensee will be one year or less. For
arrangements with licenses of intellectual property that include
sales-based royalties, including milestone payments based on the
level of sales, and the license is deemed to be the predominant
item to which the royalties relate, we recognize royalty revenue
and sales-based milestones at the later of (i) when the related
sales occur, or (ii) when the performance obligation to which the
royalty has been allocated has been satisfied.
We then
recognize as revenue the amount of the transaction price that is
allocated to the respective performance obligation when (or as)
each performance obligation is satisfied at a point in time or over
time, and if over time, based on the use of an output or input
method.
Impairment of Long-Lived Assets
In accordance with ASC 360-10
, Property, Plant &
Equipment—Overall
, we
review long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of property and
equipment may not be recoverable. Determination of recoverability
is based on an estimate of undiscounted future cash flows resulting
from the use of the asset and its eventual disposition. In the
event that such cash flows are not expected to be sufficient to
recover the carrying amount of the assets, we write down the assets
to their estimated fair values and recognize the loss in the
Consolidated Statements of Operations and Comprehensive
Loss.
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 AV-101, PH94B and
PH10,
stem cell research and development costs, and
costs related to the application and prosecution of patents related
to AV-101, PH94B, PH10 and 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 (
CRO
s) and clinical trial sites. Progress payments are
generally made to CROs, clinical sites, investigators and other
professional service providers. We analyze the progress of the
clinical trial, including levels of subject enrollment, invoices
received and contracted costs when evaluating the adequacy of
accrued liabilities. Significant judgments and estimates must be
made 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. In September 2018, we acquired an exclusive license to
develop and commercialize PH94B and an option to acquire a license
to develop and commercialize PH10 by issuing an aggregate of
1,630,435 unregistered shares of our common stock having a fair
market value of $2,250,000.
In October 2018, we exercised
our option to acquire an exclusive license to develop and
commercialize PH10 by issuing 925,926 shares of our unregistered
common stock having a fair market value of $2,000,000.
Since, at the date of each acquisition, neither
product candidate had achieved regulatory approval and each will
require significant additional development and expense, we recorded
the costs related to acquiring the licenses and the option as
research and development expense.
Stock-Based Compensation
We recognize non-cash compensation expense for all stock-based
awards to employees based on the grant date fair value of the
award. We record this expense over the period during
which the employee is required to perform services in exchange for
the award, which generally represents the scheduled vesting
period. We have granted no restricted stock awards, nor
do we have any awards with market or performance
conditions. For option grants to non-employees, we have
historically re-measured the fair value of the awards as they vest
and any resulting increase in value has been recognized as an
expense during the period over which the services are performed.
Noncash expense attributable to compensatory grants of 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 expensed ratably over the term of the
related service agreement, depending on the terms of the specific
agreement.
We use the Black-Scholes option pricing model to estimate the fair
value of stock-based awards as of the grant date. The Black-Scholes
model is complex and dependent upon key data input estimates. The
primary data inputs with the greatest degree of judgment are the
expected term of the stock options and the estimated volatility of
our stock price. The Black-Scholes model is highly sensitive to
changes in these two inputs. The expected term of the options
represents the period of time that options granted are expected to
be outstanding. We use the simplified method in accordance with
guidance provided by the Securities and Exchange Commission
(
SEC
) to estimate the expected term as an input into
the Black-Scholes option pricing model. We determine expected
volatility using the historical method, which, because of the
limited period during which our stock has been publicly traded and
its historically limited trading volume, is based on the historical
daily trading data of the common stock of a peer group of public
companies over the expected term of the option.
Warrants Issued in Connection with Equity Financing
We generally account for warrants issued in connection with equity
financings as a component of equity, unless there is a deemed
possibility that we may have to settle the warrants in cash or the
warrants contain other features requiring them to be treated as
liabilities. For warrants issued with the possibility of cash
settlement or otherwise requiring liability treatment, we record
the fair value of the issued warrants as a liability at each
reporting period and record changes in the estimated fair value as
noncash gain or loss in the Consolidated Statements of Operations
and Comprehensive Loss.
Income Taxes
We account for income taxes using the asset and liability approach
for financial reporting purposes. We recognize deferred tax assets
and liabilities for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date. Valuation allowances are established, when necessary, to
reduce the deferred tax assets to an amount expected to be
realized.
Recent Accounting Pronouncements
See Note 3 to the Consolidated Financial Statements included in
Item 8 in this Annual Report on Form 10-K for information on recent
accounting pronouncements.
Financial Operations Overview and Results of
Operations
Net Loss
We have
not yet achieved recurring revenue-generating status from any of
our product candidates or technologies.
Since inception, we have devoted substantially all
of our time and efforts to developing our initial CNS product
candidate, AV-101, from early nonclinical studies to our ongoing
Phase 2 clinical development program in MDD. In addition, we have
devoted resourced to stem cell technology research and development,
bioassay development and small molecule drug development, as well
as creating, protecting and patenting intellectual property
(
IP
) related to our product candidates and
technologies, with the corollary initiatives of recruiting and
retaining personnel and raising working capital. As discussed in
greater detail in Part I, Item 1. Business in the Annual Report,
during our fiscal year ended March 31, 2019
(
Fiscal 2019
),
we acquired the rights to develop and
commercialize PH94B and PH10.
As of March 31, 2019, we had
an accumulated deficit of approximately $181.1 million. Our net
loss for Fiscal 2019 and the fiscal year ended March 31, 2018
(
Fiscal 2018
) was
approximately $24.6 million and $14.3 million, respectively. We
expect losses to continue for the foreseeable future, primarily as
we complete our ELEVATE Study later in 2019, pursue further
clinical development of AV-101 for the adjunctive treatment of MDD
and for a range of other CNS indications, and further develop PH94B
and PH10.
Summary of Our Fiscal Year Ended March 31, 2019
During Fiscal 2019, we continued to (i) advance both nonclinical
development, including manufacturing, and clinical development of
AV-101 as a potential new generation antidepressant and as a
potential new therapeutic alternative for several CNS indications
with significant unmet need, (ii) expand the regulatory and
intellectual property foundation to support broad clinical
development and, ultimately, commercialization of AV-101 in the
U.S. and foreign markets, (iii) expand our neuropsychiatry pipeline
by acquiring exclusive worldwide licenses to PH94B and PH10, and
(iv) on a limited basis, advance drug rescue applications of our
stem cell technology to further expand our CNS pipeline. Each of
these initiatives is futher described below.
With respect to development of AV-101 during Fiscal 2019, we
continued to conduct our ELEVATE Study throughout the fiscal year,
in addition to producing supplies of AV-101 and conducting certain
Phase 3-enabling nonclinical studies involving AV-101.
In addition, pursuant to our MT CRADA with the VA and our
arrangements with Baylor, Baylor commenced the Baylor Study to
define a dose-response relationship between AV-101 and relevant
biomarkers related to NMDA function and others possibly related to
suicidal ideation in U.S. Military Veterans.
During Fiscal 2019, we expanded our portfolio of product candidates
by acquiring licenses from Pherin giving us the exclusive worldwide
rights to develop and commercialize PH94B, a rapid-onset
neuroactive nasal spray with potential to be the first FDA-approved
on-demand treatment for SAD, and PH10, a rapid-onset neuroactive
nasal spray for treatment of MDD. We completed the acquisitions of
PH94B and PH10 on a noncash basis through the issuance of an
aggregate of 2,556,361 shares of our common stock. We are actively
pursuing nonclinical and regulatory initiatives necessary to
facilitate pivotal Phase 3 clinical development of PH94B for SAD
and Phase 2b clinical development of PH10 for MDD.
We continue to pursue
initiatives to secure a broad portfolio of patent
protection for AV-101 that covers the treatment of multiple CNS
indications, unit dose formulations of AV-101 effective to treat
depression and chemical synthesis methods. With respect to CNS
treatments, during Fiscal 2019 we obtained patents in several
countries for the treatment of depression and we are pursuing
patent applications related to treatment of LID, certain types of
NP, tinnitus and obsessive-compulsive disorder. Additional patent
applications to other aspects of prognostic testing and treatment
using AV-101 are under consideration.
During Fiscal 2018 and Fiscal 2019, we have pursued patent
applications in the U.S., Australia, China, Europe, Japan and other
selected countries and regions with significant commercial
potential. Several of these patent applications were allowed or
have been granted in the U.S. and other major pharmaceutical
markets during Fiscal 2019. Based on patent issuances or allowances
to-date in several countries, we believe that pending counterpart
patent applications related to AV-101 currently under review in
other countries also are likely to be granted, although there can
be no assurance that all pending applications will ultimately be
granted.
As noted above, we have an exclusive license from Pherin to its
portfolio of patent assets around PH94B. Patents have issued in
several countries, including the U.S., Australia, Canada, China,
Europe, Japan, Korea and Mexico. We also have an exclusive license
from Pherin to its portfolio of patent assets around PH10. Patents
in this portfolio have issued in Australia, China, Europe and
Japan. Applications are pending in the U.S., Canada, Korea and
Mexico.
As with AV-101, we plan to seek regulatory exclusivity in
countries where this is available for the therapeutic use of PH94B,
with initial emphasis on treating SAD as our lead indication in
clinical development, and for the therapeutic use of PH10, with our
lead indication being the treatment of MDD.
We have obtained and are pursuing patent rights to the production
of several types of stem cells and cells differentiated from those
stem cells, including cardiomyocytes, hematopoietic cells,
chondrocytes, cartilage cells and hepatocytes, as well as the use
of certain cell types that have been differentiated from
pluripotent stem cells for therapeutic purposes, including
cell-based therapy and regenerative medicine.
With
respect to financing activities in Fiscal 2019, between June 2018
and October 2018, we completed a self-placed private placement with
accredited investors pursuant to which we sold units, at a purchase
price of $1.25 per unit, consisting of 4,605,000 unregistered
shares of our common stock and warrants, exercisable through
February 28, 2022, to purchase 4,605,000 unregistered shares of our
common stock at an exercise price of $1.50 per share (the
Summer 2018 Private
Placement
).
We received
aggregate cash proceeds of $5,756,200 from the Summer 2018 Private
Placement.
The Summer 2018 Private Placement was
oversubscribed.
To
accommodate additional investor interest, during October 2018, we
accepted subscription agreements from accredited investors,
pursuant to which we sold to such investors units, at a unit
purchase price equal to $0.15 above the closing quoted market price
of our common stock on the Nasdaq Capital Market on the effective
date of the investor’s subscription agreement, consisting of
an aggregate of 420,939 unregistered shares of our common stock and
four-year, immediately exercisable warrants to purchase 420,939
unregistered shares of our common stock at a per share exercise
price equal to the closing quoted market price of our common stock
on the Nasdaq Capital Market on the effective date of the
investor’s subscription agreement (the
Fall 2018 Private Placement
). We
received aggregate cash proceeds of $812,500 in connection with the
Fall 2018 Private Placement and settled an outstanding professional
service payable by accepting a subscription agreement in the amount
of $40,000 and issuing the corresponding number of shares and
warrants.
In
February and March 2019, we completed an underwritten public
offering of 11,500,000 shares of our common stock, including full
exercise of the underwriter’s overallotment option, at a
public offering price of $1.00 per share, resulting in gross
proceeds of $11,500,000, pursuant to our shelf registration
statement on Form S-3 (File No. 333-215671), previously filed with
the SEC (the
Spring 2019 Public
Offering
). We received net proceeds of approximately $10.4
million after deducting underwriting discounts and commissions and
offering expenses.
During
Fiscal 2019, we also received cash proceeds of $605,700 from the
exercise of outstanding warrants to purchase an aggregate of
403,800 shares our common stock.
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
clinical and nonclinical development of AV-101, PH94B, PH10 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.
Comparison of Fiscal Years Ended March 31, 2019 and
2018
The following table summarizes the results of our operations
(including cash and noncash items) for the fiscal years ended March
31, 2019 and 2018 (amounts in thousands).
|
|
Fiscal Year Ended March 31,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
Research
and development
|
$
17,098
|
$
7,763
|
|
General
and administrative
|
7,458
|
6,437
|
|
Total
operating expenses
|
24,556
|
14,200
|
|
|
|
|
|
Loss
from operations
|
(24,556
)
|
(14,200
)
|
|
|
|
|
|
Interest
expense (net)
|
(8
)
|
(9
)
|
|
Loss
on extinguishment of accounts payable
|
(23
)
|
(135
)
|
|
|
|
|
|
Loss
before income taxes
|
(24,587
)
|
(14,344
)
|
|
Income
taxes
|
(2
)
|
(2
)
|
|
|
|
|
|
Net
loss
|
(24,589
)
|
(14,346
)
|
|
Accrued
dividend on Series B Preferred Stock
|
(1,140
)
|
(1,030
)
|
|
Deemed
dividend from trigger of down round
|
|
|
|
provision
feature
|
-
|
(199
)
|
|
Net
loss attributable to common stockholders
|
$
(25,729
)
|
$
(15,575
)
|
Revenue
We reported no revenue for either Fiscal 2019 or Fiscal 2018 and we
presently have no recurring revenue generating arrangements,
including arrangements with respect to AV-101, PH94B, PH10 or other
potential product candidates. While we may potentially receive
additional payments and royalties in the future under our December
2016 BlueRock Agreement in the event certain performance-based
milestones and commercial sales are achieved, there can be no
assurance that the BlueRock Agreement will provide additional
revenue to us in the near term or at all.
Research and Development Expense
Research and development expense increased to approximately $17.1
million in Fiscal 2019 (including approximately $5.6 million of
non-cash expense) compared to approximately $7.8 million in Fiscal
2018. This increase is primarily attributable to (i) the noncash
acquisition of the PH94B license and the PH10 option and license
through the issuance of unregistered shares of our common stock,
which resulted in an aggregate of $4.25 million of expense, (ii)
expenses related to conducting the ELEVATE Study throughout Fiscal
2019 and (iii) various nonclinical research and development, as
well as manufacture of additional quantities of AV-101. Other
noncash expenses included in research and development expense,
including stock compensation, lab equipment depreciation and a
portion of rent expense in both years and a portion of AV-101
project expenses in Fiscal 2019, aggregated approximately
$1,382,000 and $1,595,000 for Fiscal 2019 and Fiscal 2018,
respectively.
The following table indicates the primary components of research
and development expense for each of the periods (amounts in
thousands):
|
|
Fiscal Years Ended March 31,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Salaries
and benefits
|
$
1,806
|
$
1,563
|
|
Stock-based
compensation
|
1,259
|
969
|
|
Consulting
and other professional services
|
264
|
32
|
|
Technology
licenses and royalties
|
571
|
433
|
|
Project-related
research and supplies:
|
|
|
|
ELEVATE
study and other AV-101 expenses
|
8,126
|
4,154
|
|
PH94B
and PH10 licenses and other expenses
|
4,496
|
-
|
|
Stem
cell and all other
|
105
|
130
|
|
|
12,727
|
4,284
|
|
Rent
|
419
|
412
|
|
Depreciation
|
49
|
66
|
|
All
other
|
3
|
4
|
|
|
|
|
|
Total
Research and Development Expense
|
$
17,098
|
$
7,763
|
The increase in salaries and benefits expense reflects the impact
of salary increases effective in July 2018 and bonuses granted to
our Chief Medical Officer (
CMO
), Chief Scientific Officer (
CSO
) and members of our scientific staff, offset by
the impact of a staff termination in the first quarter of Fiscal
2018 and a staff leave of absence in the fourth quarter of Fiscal
2019.
Non-cash stock-based compensation expense increased significantly
in Fiscal 2019 as a result of (i) the impact of new options granted
to our CMO, CSO, and members of our scientific staff in August
2018, which options were 25% vested upon grant and vest ratably
until becoming fully-vested within two years thereafter, and (ii)
the modification in August 2018 of outstanding options held by our
CMO, CSO and members of our scientific staff having exercise prices
over $1.56 per share to reduce the exercise price to $1.50 per
share in accordance with the terms of our 2016 Amended and Restated
Stock Incentive Plan. Non-cash stock compensation expense
attributable to grants made in Fiscal 2019 and including the
$104,000 immediately recognized impact of the modification of
exercise prices accounted for approximately $310,000 in Fiscal
2019. Fiscal 2019 expense is attributable to grants made in June
2016 and thereafter, all earlier grants having become fully vested
and amortized prior to September 30, 2018.
Consulting and other professional services reflects fees paid or
accrued for scientific, nonclinical and clinical development and
regulatory advisory services rendered to us by third-parties, in
both periods, in Fiscal 2018, primarily by members of our
scientific and CNS clinical and regulatory advisory boards. The
increase in Fiscal 2019 expense reflects consulting and support
services in connection with our acquisition of the exclusive
licenses to PH94B and PH10 and related consulting
arrangements.
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 or that we have elected to
pursue for commercial purposes. We recognize these costs as they
are invoiced to us by the licensors or counsel and they may vary
noticeably between years. In both periods, this expense includes
legal counsel and other costs we have incurred to advance pending
patent applications in the U.S. and numerous foreign countries with
respect to AV-101 and our stem cell technology platform.
Acquisition of the PH94B and PH10 licenses contributed only
nominally to the increased expense in Fiscal 2019.
AV-101 project expense for Fiscal 2019 primarily reflects the
continuing costs of conducting the ELEVATE Study, including various
CRO, investigator and clinical site costs, as well as expense
incurred to manufacture additional quantities of AV-101 for use in
future nonclinical and clinical trials of AV-101 for MDD and other
potential CNS indications. In Fiscal 2018, AV-101 project expense
primarily reflected costs incurred to develop our current
proprietary manufacturing methods for AV-101, to produce quantities
of AV-101 in preparation for the ELEVATE Study and Baylor Study and
various expenses related to initiating the ELEVATE
Study.
As indicated earlier, noncash expense related to the acquisition of
the PH94B and PH10 licenses and PH10 option reflects the $4.25
million fair value of an aggregate of 2,556,361 unregistered shares
of our common stock issued to Pherin in September 2018 and October
2018 under the terms of the applicable license and option
agreements. Additional Fiscal 2019 expense primarily relates to
initiatives advancing the further development of
PH94B.
Stem cell and other project related expenses reflects costs
associated with drug rescue applications of our stem cell
technology in both years.
Rent expense is relatively flat between the periods and 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 and the
related accounting for the amendment.
General and Administrative Expense
General and administrative (
G&A
) expense increased by approximately $1.0 million
to approximately $7.5 million in Fiscal 2019, as compared to
approximately $6.4 million in Fiscal 2018, primarily as a result of
increased noncash stock-based compensation expense. Other G&A
expenses fluctuated moderately both up and down, but in aggregate
were generally unchanged between years. Noncash G&A expense
components accounted for approximately $2,622,000 and $2,884,000 in
Fiscal 2019 and Fiscal 2018, respectively. Such non-cash expenses
included, in both periods, stock compensation expense, a portion of
professional services and investor relations expense, a portion of
rent expense, and warrant modification expense. The following table
indicates the primary components of general and administrative
expense for each of the periods (amounts in
thousands):
|
|
Fiscal Years Ended March 31,
|
|
|
|
2019
|
2018
|
|
Salaries
and benefits
|
$
1,972
|
$
1,575
|
|
Stock-based
compensation
|
2,184
|
1,375
|
|
Board
fees
|
163
|
155
|
|
Legal,
accounting and other professional fees
|
503
|
785
|
|
Investor
relations
|
1,690
|
1,454
|
|
Insurance
|
281
|
242
|
|
Travel
expenses
|
174
|
131
|
|
Rent
and utilities
|
288
|
279
|
|
Warrant
modification expense
|
26
|
293
|
|
All
other expenses
|
177
|
148
|
|
|
$
7,458
|
$
6,437
|
The increase in salaries and benefits primarily reflects the impact
of salary increases effective in July 2018 and bonuses granted to
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.
Non-cash stock-based compensation expense increased significantly
in Fiscal 2019 as a result of (i) the impact of new options granted
to our CEO in January 2019 and to our CFO, VP Corporate
Development, our administrative staff, and the independent members
of our Board of Directors (
Board
) in August 2018, each of which were 25% vested
upon grant and vest ratably until becoming fully-vested within two
years thereafter, and (ii) the modification in August 2018 of
outstanding options held by our CEO, CFO, VP Corporate Development,
our administrative staff, and the independent members of our Board
having exercise prices over $1.56 per share to reduce the exercise
price to $1.50 per share as permitted by the terms of our 2016
Amended and Restated Stock Incentive Plan. Non-cash stock
compensation expense attributable to grants made in Fiscal 2019,
including the $154,000 immediately recognized impact of the
modification of exercise prices, accounted for approximately
$584,000 in Fiscal 2019. Additionally, the full year expense impact
of grants made in February 2018 to our CEO, CFO, VP Corporate
Development, our administrative staff, and the independent members
of our Board contributed approximately an additional $183,000 to
Fiscal 2019 expense. Fiscal 2019 expense is attributable to grants
made in June 2016 and thereafter, all earlier grants having become
fully vested and amortized prior to September 30,
2018.
Board fees represents fees paid as consideration for Board and
Board Committee services to the independent members of our Board.
The Fiscal 2019 increase is attributable to the addition of a new
independent member to our Board in January 2019.
Legal, accounting and other professional fees for Fiscal 2019 and
Fiscal 2018 includes expenses related to routine legal fees as well
as the accounting expense related to the annual audit of the prior
year’s financial statements and the review of the financial
statements for the first three quarters of the current fiscal year.
Further, in Fiscal 2019, we incurred $94,000 attributable to
services provided by an international business development
consultant. In addition to routine legal and accounting cash fees
incurred, in Fiscal 2018, we granted an aggregate of 20,000
unregistered shares of our common stock having an aggregate grant
date fair value of $30,800 to legal services providers as partial
compensation for services and an aggregate of 150,000 unregistered
shares of our common stock having an aggregate grant date fair
value of $234,000 to two investment banking firms pursuant to
financial advisory agreements. We incurred no similar non-cash
expense in Fiscal 2019.
Investor and public relations expense includes the fees of our
various external service providers for a broad spectrum of investor
relations and public relations services, as well as market
awareness, strategic advisory and support functions and initiatives
that included numerous meetings in multiple U.S. markets and other
communication activities focused on expanding market awareness of
the Company and its research and development programs, including
among registered investment professionals and investment advisors,
individual and institutional investors, securities analysts and
media. During Fiscal 2019, in addition to cash fees and expenses,
we granted: (i) in the first quarter, an aggregate of 100,000
unregistered shares of our common stock to certain financial
advisory service providers as full or partial compensation for
their services and recognized noncash expense of approximately
$123,000 representing the fair value of the stock at the time of
issuance; (ii) in the second quarter, an aggregate of 50,000
unregistered shares of our common stock and four-year warrants to
purchase an aggregate of 288,000 unregistered shares of our common
stock having an aggregate fair value of approximately $336,000 to
various corporate development, investor relations, and market
awareness service providers, pursuant to which we recognized
aggregate non-cash expense of approximately $257,000; and (iii) in
the fourth quarter, 25,000 registered shares of our common stock
pursuant to our 2016 Amended and Restated Stock Incentive Plan
having a fair value of $41,500 as partial compensation for investor
relations services, pursuant to which we recognized noncash expense
of approximately $14,000. The balance of the fair value of the
securities granted in the second and fourth quarters of Fiscal 2019
remains recorded as a prepaid expense and is being amortized over
the remaining service period of the respective contracts. In Fiscal
2018, in addition to cash fees and expenses we incurred, we granted
an aggregate of 582,000 shares of our unregistered common stock to
various corporate development, investor relations, market awareness
and business advisory service providers as full or partial
compensation for their services and recognized noncash expense
totaling $886,300, representing the fair value of the stock at the
time of issuance.
In both Fiscal 2019 and Fiscal 2018, travel expense reflects costs
associated with management presentations and meetings held in
multiple U.S. markets, and certain international markets in Fiscal
2019, 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 in Fiscal
2019.
Rent expense is essentially unchanged between the two periods and
primarily 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 and the related accounting for the amendment.
During
the third quarter of Fiscal 2019, we modified certain warrants
issued in the Summer 2018 Private Placement to comply with certain
provisions of The Nasdaq Stock Market Rules applicable to the
offering by increasing the exercise price of such warrants to
purchase an aggregate of 304,000 shares of our common stock from
$1.50 per share to $1.59 per share or $1.69 per share, depending on
the effective date of the related subscription agreement. As
additional consideration for the modification, we granted the
investors additional warrants to purchase an aggregate of 23,800
unregistered shares of our common stock at an exercise price of
$1.75 per share through February 28, 2022.
We determined that the modification decreased the
fair value of the modified warrants, which decrease is not
recognized; however, the fair value of the new warrants was
determined to be $25,800, which we recognized as noncash warrant
modification expense. In the second quarter of Fiscal 2018, we
reduced the exercise price of 247,500 warrants issued in our spring
2017 private placement offering from a weighted average exercise
price of $3.99 per share to $2.00 per share. We also issued to each
of the investors in the spring 2017 private placement additional
warrants to purchase an aggregate total of 247,501 shares of common
stock, with an exercise price of $2.00 per share. We recognized
noncash expense of $279,700 in the second quarter of Fiscal 2018
representing the increase in fair value of the warrants granted
initially plus the fair value of the additional warrants granted.
During the third quarter of Fiscal 2018, we modified outstanding
warrants issued in private placement transactions between August
2017 and November 2017 to purchase an aggregate of 178,572 shares
of our common stock to reduce the exercise prices from a weighted
average of $2.32 per share to a weighted average of $1.58 per
share. We recognized the calculated increase in the fair value of
the warrants, $13,000, as noncash warrant modification
expense.
Interest and Other Expenses, Net
Interest expense totaled $8,000 for Fiscal 2019 compared to $8,900
for Fiscal 2018. Interest expense in both periods relates to
interest paid on insurance premium financing and on a capital lease
of office equipment.
During
the third quarter of Fiscal 2019, in connection with the Fall 2018
Private Placement, we settled an outstanding professional service
payable by accepting a subscription agreement in the amount of
$40,000 and issuing the corresponding number of shares of common
stock and warrants. The fair value of the common stock and warrant
issued in settlement of the payable was determined to be $62,700 on
the effective date of the agreement. Accordingly, we recognized a
loss on extinguishment of accounts payable in the amount of $22,700
in Fiscal 2019. During the third quarter of Fiscal 2018, we issued
500,000 unregistered shares of our common stock having a grant date
fair value of $585,000 and a cash payment of $76,500 to a contract
manufacturing organization in settlement of $526,500 of open
accounts payable. We recognized a corresponding loss on settlement
of accounts payable in the amount of $135,000 in Fiscal
2018.
We
recognized $1,139,900 and
$1,030,300
in Fiscal 2019 and Fiscal 2018, respectively, representing the 10%
cumulative noncash dividend payable on our Series B Preferred as an
additional deduction in arriving at net loss attributable to common
stockholders in the
Consolidated Statement of Operations and
Comprehensive Loss included in Item 8 of this Annual Report. The
dividends are payable in unregistered shares of our common stock
upon the conversion of Series B Preferred shares.
There have been no conversions of outstanding
shares of Series B Preferred into common shares since August
2016.
Our
December 2017 public offering of units consisting of shares of our
common stock and common stock purchase warrants at an offering
price of $1.50 per unit (the
December 2017 Public Offering
)
triggered the anti-dilution protection provisions of the Series A2
Warrants to purchase an aggregate of 503,641 shares of our common
stock issued in the public offering we completed in September 2017.
In accordance with the anti-dilution terms and formula contained in
the Series A2 warrants, the exercise price of the Series A2
Warrants was reduced from the initial exercise price of $1.82 per
share to $0.001 per share. We recognized the effect of triggering
the down round feature, $199,200, as a further addition to net loss
attributable to common stockholders and in our calculation of basic
and fully diluted earnings per share in our Consolidated Statement
of Operations and Comprehensive Loss and as a dividend in our
Consolidated Statement of Stockholders’ Equity for Fiscal
2018 included in Item 8 of this Annual Report. The holders of the
Series A2 Warrants subsequently exercised them in the third and
fourth quarters of Fiscal 2018 and we received minimal cash
proceeds from the exercises. Following the exercise of the Series
A2 Warrants, none of our outstanding warrants contain antidilution
protection provisions other than is customary in the event of a
change in our capital structure as a result of a stock split or
dividend.
Liquidity and Capital Resources
Since our inception in May 1998 through March 31, 2019, 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 $79.0 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 such as the Baylor Study),
strategic collaboration payments, intellectual property
sublicensing and other revenues. Additionally, we have issued
equity securities with an approximate value at issuance of $38.1
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.
At March 31, 2019, we had cash and cash equivalents of
approximately $13.1 million.
Our cash position at March 31, 2019 considered with our recurring
and anticipated losses, negative cash flows from operations and
limited stockholders’ equity make it probable, in the absence
of additional financing, that we will not have sufficient resources
to fund our planned operations for the twelve months following the
issuance of these financial statements, during which time we plan
to complete our ELEVATE study, prepare for and launch a pivotal
Phase 3 clinical trial of PH94B, prepare for additional Phase 2a
clinical and certain nonclinical studies involving AV-101 and
prepare for a Phase 2b clinical trial of PH10, and raises
substantial doubt that we can continue as a going concern.
Nevertheless, when necessary and advantageous, we plan to raise
additional capital, primarily through the sale of our equity
securities in one or more private placements to accredited
investors or in public offerings. Subject to certain restrictions,
our effective Registration Statement on Form S-3 (Registration No.
333-215671) (the
S-3 Registration
Statement
) remains available
for future sales of our equity securities in one or more public
offerings from time to time. While we may make additional sales of
our equity securities under the S-3 Registration Statement, we do
not have an obligation to do so. As we have been in the past, we
expect that, if 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 or
institutions.
In addition to the potential sale of our equity securities, we may
also seek to enter research, development and/or commercialization
collaborations that could generate revenue or provide funding,
including non-dilutive funding, for development of AV-101, PH94B,
PH10 and/or additional product candidates. We may also seek
additional government grant awards or agreements similar, for
example, to our recent CRADA with the NIMH, which provided for the
NIMH to fully fund the NIMH Study, or similar to our relationships
with Baylor and the VA in connection with the Baylor Study. 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 BlueRock
Agreement with other parties. Although we may seek additional
collaborations that could generate revenue and/or provide
non-dilutive funding for development of AV-101, PH94B, PH10 or
other 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, the scope and nature of
opportunities related to our success and the success of certain
other companies in 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
AV-101, PH94B, PH10 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 research
and development, investor relations and corporate development,
legal, acquisition and protection of intellectual property, public
company compliance and other professional services and operating
costs.
Notwithstanding the foregoing, there can be no assurance 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
2019 and beyond, our business, financial condition, and results of
operations may be harmed, the price of our stock may decline, we
may be required to reduce, defer, or discontinue certain of our
research and development activities and we may not be able to
continue as a going concern. The Consolidated Financial
Statements included in Part II, Item 8 of this Annual Report do not
include any adjustments that might result from the negative outcome
of this uncertainty.
Cash and Cash Equivalents
The following table summarizes changes in cash and cash equivalents
for the periods stated (in thousands):
|
|
Fiscal Years Ended March 31,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Net
cash used in operating activities
|
$
(14,528
)
|
$
(9,058
)
|
|
Net
cash used in investing activities
|
(174
)
|
(2
)
|
|
Net
cash provided by financing activities
|
17,424
|
16,517
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
2,722
|
7,457
|
|
Cash
and cash equivalents at beginning of period
|
10,378
|
2,921
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
$
13,100
|
$
10,378
|
The increase in cash used in operations results primarily from
conducting our ELEVATE Study, which commenced at the end of the
fourth quarter of Fiscal 2018. Additional contributors to the
increase in cash used in operations are modest increases in
employee cash compensation and benefits and an expansion of various
investor relations and corporate development and awareness
initiatives. The increase in cash used in investing activities
reflects the cost of tenant improvements at our office and
laboratory facilities in South San Francisco, California,
substantially all of which were reimbursed by our landlord under
the terms of our November 2016 lease extension, which reimbursement
is reflected in operating activities. Cash provided by financing
activities in Fiscal 2019 primarily reflects the cash proceeds from
our Spring 2019 Public Offering, our Summer 2018 and Fall 2018
Private Placements, and warrant and option exercises and, in Fiscal
2018, the proceeds of our September 2017 and December 2017 public
offerings, net of routine note and capital lease payments in both
years.
Off-Balance Sheet Arrangements
Other than contractual obligations incurred in the normal course of
business, we do not have any off-balance sheet financing
arrangements or liabilities, guarantee contracts, retained or
contingent interests in transferred assets or any obligation
arising out of a material variable interest in an unconsolidated
entity. VistaStem has two inactive, wholly owned subsidiaries,
Artemis Neuroscience, Inc., a Maryland corporation, and VistaStem
Canada, Inc., an Ontario corporation.
The disclosures in this section are not required because we qualify
as a smaller reporting company under federal securities
laws.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
81
|
|
Consolidated
Balance Sheets
|
82
|
|
Consolidated
Statements of Operations and Comprehensive Loss
|
83
|
|
Consolidated
Statements of Cash Flows
|
84
|
|
Consolidated
Statements of Stockholders' Equity
|
85
|
|
Notes
to Consolidated Financial Statements
|
86
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
Stockholders and Board of Directors
VistaGen Therapeutics, Inc.
South San Francisco, California
Opinion on the Financial Statements
We have audited the accompanying
consolidated balance sheets
of VistaGen Therapeutics, Inc. as of March 31, 2019 and 2018,
the related consolidated statements of operations and comprehensive
loss, cash flows, and stockholders’ equity for each of the
two fiscal years in the period ended March 31,
2019
, and the related notes
(collectively referred to as the “financial
statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of
the Company at March 31, 2019 and 2018, and the results of its
operations and its cash flows for each of the two years in the
period ended March 31, 2019
,
in conformity with accounting principles generally
accepted in the United States of America.
Going Concern Uncertainty
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 2 to the consolidated financial statements, the
Company has not yet generated sustainable revenues, has suffered
recurring losses and negative cash flows from operations and has
minimal stockholders’ equity, all of which raise substantial
doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in
Note 2. The consolidated financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud.
The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over
financial reporting. As part of
our
audits we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express
no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ OUM & CO. LLP
San Francisco, California
June 25, 2019
We have served as the Company's auditor since 2006.
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in dollars, except share amounts)
|
|
March 31,
|
March 31,
|
|
|
2019
|
2018
|
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash
and cash equivalents
|
$
13,100,300
|
$
10,378,300
|
|
Receivable
from supplier
|
300,000
|
-
|
|
Prepaid
expenses and other current assets
|
250,900
|
644,800
|
|
Total
current assets
|
13,651,200
|
11,023,100
|
|
Property
and equipment, net
|
312,700
|
207,400
|
|
Security
deposits and other assets
|
47,800
|
47,800
|
|
Total
assets
|
$
14,011,700
|
$
11,278,300
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
1,055,000
|
$
1,195,700
|
|
Accrued
expenses
|
1,685,600
|
206,300
|
|
Current
notes payable
|
57,300
|
53,900
|
|
Capital
lease obligations
|
3,000
|
2,600
|
|
Total
current liabilities
|
2,800,900
|
1,458,500
|
|
|
|
|
|
Non-current
liabilities:
|
|
|
|
Accrued
dividends on Series B Preferred Stock
|
3,748,200
|
2,608,300
|
|
Deferred
rent liability
|
381,100
|
285,600
|
|
Capital
lease obligations
|
6,300
|
9,300
|
|
Total
non-current liabilities
|
4,135,600
|
2,903,200
|
|
Total
liabilities
|
6,936,500
|
4,361,700
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
Preferred
stock, $0.001 par value; 10,000,000 shares authorized at March 31,
2019 and 2018:
|
|
|
|
Series
A Preferred, 500,000 shares authorized, issued and outstanding at
March 31, 2019 and 2018
|
500
|
500
|
|
Series
B Preferred; 4,000,000 shares authorized at March 31, 2019 and
2018; 1,160,240 shares
|
|
|
|
issued
and outstanding at March 31, 2019 and 2018
|
1,200
|
1,200
|
|
Series
C Preferred; 3,000,000 shares authorized at March 31, 2019 and
2018; 2,318,012 shares
|
|
|
|
issued
and outstanding at March 31, 2019 and 2018
|
2,300
|
2,300
|
|
Common
stock, $0.001 par value; 100,000,000 shares authorized at March 31,
2019 and 2018;
|
|
|
|
42,758,630 and 23,068,280 shares issued and outstanding at March
31, 2019 and March 31, 2018,
respectively
|
42,800
|
23,100
|
|
Additional
paid-in capital
|
192,129,900
|
167,401,400
|
|
Treasury
stock, at cost, 135,665 shares of common stock held at March 31,
2019 and 2018
|
(3,968,100
)
|
(3,968,100
)
|
|
Accumulated
deficit
|
(181,133,400
)
|
(156,543,800
)
|
|
Total
stockholders’ equity
|
7,075,200
|
6,916,600
|
|
Total
liabilities and stockholders’ equity
|
$
14,011,700
|
$
11,278,300
|
See accompanying notes to consolidated financial
statements.
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
(Amounts in dollars, except share amounts)
|
|
Fiscal Years Ended March 31,
|
|
|
|
2019
|
2018
|
|
Operating
expenses:
|
|
|
|
Research
and development
|
$
17,098,500
|
$
7,762,500
|
|
General
and administrative
|
7,457,800
|
6,437,100
|
|
Total
operating expenses
|
24,556,300
|
14,199,600
|
|
Loss
from operations
|
(24,556,300
)
|
(14,199,600
)
|
|
Other
expenses, net:
|
|
|
|
Interest
expense, net
|
(8,000
)
|
(8,900
)
|
|
Loss
on extinguishment of accounts payable
|
(22,700
)
|
(135,000
)
|
|
Loss
before income taxes
|
(24,587,000
)
|
(14,343,500
)
|
|
Income
taxes
|
(2,600
)
|
(2,400
)
|
|
Net
loss and comprehensive loss
|
(24,589,600
)
|
(14,345,900
)
|
|
|
|
|
|
Accrued
dividend on Series B Preferred stock
|
(1,139,900
)
|
(1,030,400
)
|
|
Deemed
dividend from trigger of down round
|
|
|
|
provision
feature
|
-
|
(199,200
)
|
|
|
|
|
|
Net
loss attributable to common stockholders
|
$
(25,729,500
)
|
$
(15,575,500
)
|
|
|
|
|
|
Basic
and diluted net loss attributable to common
|
|
|
|
stockholders
per common share
|
$
(0.90
)
|
$
(1.12
)
|
|
|
|
|
|
Weighted
average shares used in computing
|
|
|
|
basic
and diluted net loss attributable to common
|
|
|
|
stockholders
per common share
|
28,562,490
|
13,890,041
|
See accompanying notes to consolidated financial
statements.
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in dollars)
|
|
Fiscal Years Ended March 31,
|
|
|
|
2019
|
2018
|
|
Cash
flows from operating activities:
|
|
|
|
Net
loss
|
$
(24,589,600
)
|
$
(14,345,900
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
Depreciation
and amortization
|
91,200
|
80,700
|
|
Stock-based
compensation
|
3,443,400
|
2,344,200
|
|
Expense
related to modification of warrants
|
25,800
|
292,700
|
|
Fair
value of common stock issued for services
|
391,100
|
1,615,800
|
|
Fair
value of common stock issued for product licenses and
option
|
4,250,000
|
-
|
|
Fair
value of warrants issued for services
|
119,700
|
-
|
|
Loss
on settlement of accounts payable
|
22,700
|
135,000
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Receivable
from supplier
|
(300,000
)
|
-
|
|
Prepaid
expenses and other current assets
|
589,000
|
131,200
|
|
Accounts
payable and accrued expenses
|
1,338,700
|
541,700
|
|
Deferred
rent
|
90,500
|
146,300
|
|
Net
cash used in operating activities
|
(14,527,500
)
|
(9,058,300
)
|
|
|
|
|
|
Cash
flows from property and investing activities:
|
|
|
|
Purchases
of equipment and acquisition of tenant improvements
|
(174,000
)
|
(1,600
)
|
|
Net
cash used in investing activities
|
(174,000
)
|
(1,600
)
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
Net
proceeds from issuance of common stock and warrants, including
Units
|
17,041,000
|
16,722,300
|
|
Proceeds
from exercise of warrants
|
605,700
|
-
|
|
Repayment
of capital lease obligations
|
(2,700
)
|
(2,400
)
|
|
Repayment
of notes payable
|
(220,500
)
|
(203,000
)
|
|
Net
cash provided by financing activities
|
17,423,500
|
16,516,900
|
|
Net
increase in cash and cash equivalents
|
2,722,000
|
7,457,000
|
|
Cash
and cash equivalents at beginning of period
|
10,378,300
|
2,921,300
|
|
Cash
and cash equivalents at end of period
|
$
13,100,300
|
$
10,378,300
|
|
|
|
|
|
Supplemental
disclosure of cash flow activities:
|
|
|
|
Cash
paid for interest
|
$
8,000
|
$
8,900
|
|
Cash
paid for income taxes
|
$
2,600
|
$
2,400
|
|
|
|
|
|
Supplemental
disclosure of noncash activities:
|
|
|
|
Insurance
premiums settled by issuing note payable
|
$
224,000
|
$
202,100
|
|
Accrued
dividends on Series B Preferred
|
$
1,139,900
|
$
1,030,400
|
|
Deemed
dividend from trigger of down round provision feature
|
$
-
|
$
199,200
|
|
Accounts
payable settled by issuing common stock
|
$
40,000
|
$
450,000
|
See accompanying notes to consolidated financial
statements.
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Fiscal Years Ended March 31, 2018 and 2019
(Amounts in dollars, except share amounts)
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Total
|
|
|
Series A
Preferred Stock
|
Series B
Preferred Stock
|
Series C
Preferred Stock
|
Common
Stock
|
|
Paid-in
|
Treasury
|
Accumulated
|
Stockholders’
|
|||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Stock
|
Deficit
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at March 31, 2017
|
500,000
|
$
500
|
1,160,240
|
$
1,200
|
2,318,012
|
$
2,300
|
8,974,386
|
$
9,000
|
$
146,569,600
|
$
(3,968,100
)
|
$
(141,998,700
)
|
$
615,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of
common stock and warrants for cash in September
2017
Public Offering, net of underwriting discount and
expenses
|
-
|
-
|
-
|
-
|
-
|
-
|
1,371,430
|
1,400
|
2,023,000
|
-
|
-
|
2,024,400
|
|
Proceeds from sale of
common stock and warrants for cash in December
2017
Public Offering, net of underwriting discount and
expenses
|
-
|
-
|
-
|
-
|
-
|
-
|
10,000,000
|
10,000
|
13,614,000
|
-
|
-
|
13,624,000
|
|
Proceeds from sale of
common stock and warrants for cash in
private
placement offerings
|
-
|
-
|
-
|
-
|
-
|
-
|
616,323
|
600
|
1,072,600
|
-
|
-
|
1,073,200
|
|
Proceeds from exercise
of warrants
|
-
|
-
|
-
|
-
|
-
|
-
|
503,641
|
500
|
-
|
-
|
-
|
500
|
|
Accrued dividends on
Series B Preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,030,400
)
|
-
|
-
|
(1,030,400
)
|
|
Stock-based
compensation expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
2,344,100
|
-
|
-
|
2,344,100
|
|
Fair value of common
stock granted for services
|
-
|
-
|
-
|
-
|
-
|
-
|
1,102,500
|
1,100
|
1,732,100
|
-
|
-
|
1,733,200
|
|
Fair value of common
stock granted in settlement of accounts payable
|
-
|
-
|
-
|
-
|
-
|
-
|
500,000
|
500
|
584,500
|
-
|
-
|
585,000
|
|
Increase in fair value
attributable to warrant modifications
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
292,700
|
-
|
-
|
292,700
|
|
Deemed dividend from
trigger of down round provision feature
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
199,200
|
-
|
(199,200
)
|
-
|
|
Net loss for the fiscal
year ended March 31, 2018
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(14,345,900
)
|
(14,345,900
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at March 31, 2018
|
500,000
|
$
500
|
1,160,240
|
$
1,200
|
2,318,012
|
$
2,300
|
23,068,280
|
$
23,100
|
$
167,401,400
|
$
(3,968,100
)
|
$
(156,543,800
)
|
$
6,916,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of
common stock for cash in February 2019 Public
Offering, net of underwriting discount and
expenses
|
-
|
-
|
-
|
-
|
-
|
-
|
11,500,000
|
11,500
|
10,376,900
|
-
|
-
|
10,388,400
|
|
Proceeds from sale of
common stock and warrants for cash and settlement
of
professional services payable in private placement
offerings
|
-
|
-
|
-
|
-
|
-
|
-
|
5,025,939
|
5,000
|
6,626,400
|
-
|
-
|
6,631,400
|
|
Proceeds from exercise
of warrants
|
-
|
-
|
-
|
-
|
-
|
-
|
403,800
|
400
|
605,300
|
-
|
-
|
605,700
|
|
Proceeds from exercise
of stock options
|
-
|
-
|
-
|
-
|
-
|
-
|
29,250
|
-
|
43,900
|
-
|
-
|
43,900
|
|
Accrued dividends on
Series B Preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,139,900
)
|
-
|
-
|
(1,139,900
)
|
|
Stock-based
compensation expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
3,443,400
|
-
|
-
|
3,443,400
|
|
Fair value of common
stock issued for PH94B license and PH10 option
and
license
|
-
|
-
|
-
|
-
|
-
|
-
|
2,556,361
|
2,600
|
4,247,400
|
-
|
-
|
4,250,000
|
|
Fair value of common
stock and warrants issued for services
|
-
|
-
|
-
|
-
|
-
|
-
|
175,000
|
200
|
499,300
|
-
|
-
|
499,500
|
|
Increase in fair value
attributable to warrant modifications
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
25,800
|
-
|
-
|
25,800
|
|
Net loss for the fiscal
year ended March 31, 2019
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(24,589,600
)
|
(24,589,600
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at March 31, 2019
|
500,000
|
$
500
|
1,160,240
|
$
1,200
|
2,318,012
|
$
2,300
|
42,758,630
|
$
42,800
|
$
192,129,900
|
$
(3,968,100
)
|
$
(181,133,400
)
|
$
7,075,200
|
See accompanying notes to consolidated financial
statements.
1. Description of Business
Overview
VistaGen Therapeutics, Inc., a Nevada corporation
(which may
be referred to as
VistaGen
, the
Company
,
we
,
our
, or
us
),
is a clinical-stage
biopharmaceutical company
committed to developing and
commercializing new generation medicines to treat diseases and
disorders of the central nervous system (
CNS
) with high unmet need. Our
portfolio of three clinical-stage product candidates is currently
focused predominantly on major depressive disorder (
MDD
) and social anxiety disorder
(
SAD
).
MDD is a serious neurobiologically-based mood disorder, affecting
approximately 16 million adults in the United States, according to
the U.S. National Institutes of Health (
NIH
). Individuals diagnosed with MDD exhibit
depressive symptoms, such as a depressed mood or a loss of interest
or pleasure in daily activities, for more than a two-week period,
as well as impaired social, occupational, educational or other
important functioning which has a negative impact on their quality
of life. Globally, MDD affects nearly 300 million people of all
ages and is the leading cause of disability
worldwide.
SAD affects as many as 15 million Americans and is the third most
common psychiatric condition after depression and substance abuse,
according to the Anxiety and Depression Association of America..
SAD is characterized by a persistent and unreasonable fear of one
or more social or performance situations, where the individual
fears that he or she will act in a way or show symptoms that will
be embarrassing or humiliating, leading to avoidance of the
situations when possible and anxiety or distress when they occur.
These fears have a significant impact on the person's employment,
social activities and overall quality of life. Only three drugs,
all antidepressants, are approved by the U.S Food and Drug
Administration (
FDA
) for treatment of SAD. However, for treatment of
both MDD and SAD, current oral antidepressants (
ADs
) have slow onset of effect (often several weeks
to months) and significant side effects that may make them
inadequate treatment alternatives for many individuals affected by
MDD and SAD.
Our most advanced product candidate, PH94B neuroactive nasal spray,
is fundamentally different from all current treatments for SAD.
Developed from proprietary compounds called pherines and
administered as a nasal spray, PH94B activates nasal chemosensory
receptors that trigger neural circuits in the brain that suppress
fear and anxiety. In a published double-blind, placebo-controlled
Phase 2 clinical trial, PH94B neuroactive nasal spray was
significantly more effective than placebo in reducing
public-speaking and social interaction anxiety on laboratory
challenges of individuals with SAD.
Its
novel mechanism of pharmacological action, rapid-onset of
therapeutic effects and exceptional safety and tolerability profile
in clinical trials to date make PH94B neuroactive nasal spray an
excellent product candidate with potential to become the first
FDA-approved on-demand, as-needed, or PRN, treatment for
SAD.
AV-101 (4-Cl-KYN), one of our two product candidates for MDD,
belongs to a new generation of investigational medicines in
neuropsychiatry and neurology known as NMDA (N-methyl-D-aspartate)
glutamate receptor modulators. The NMDA receptor is a pivotal
receptor in the brain and abnormal NMDA function is associated with
multiple CNS diseases and disorders, including MDD, chronic
neuropathic pain, epilepsy, Parkinson's disease levodopa-induced
dyskinesia and many others. AV-101 is an oral prodrug of 7-Cl-KYNA
which binds uniquely at the glycine site of the NMDA receptor and
has potential to be a new at-home treatment for MDD. AV-101 is
currently in Phase 2 development in the U.S. for MDD. ELEVATE is
our Phase 2 multicenter, multi-dose, double blind,
placebo-controlled clinical study to evaluate the efficacy and
safety of AV-101 as an add-on treatment for MDD in adult patients
with an inadequate therapeutic response to current FDA-approved ADs
(the
ELEVATE
Study
). We currently anticipate
top line results from the ELEVATE Study in the second half of 2019.
The FDA has granted Fast Track designation for development of
AV-101 both as a potential add-on treatment of MDD and as a
non-opioid treatment for neuropathic pain.
Our other product candidate for MDD in Phase 2 development for MDD
is PH10 neuroactive nasal spray. PH10 is a potential
first-in-class, CNS neurosteroid nasal spray administered in
microgram doses for MDD. PH10 nasal spray activates nasal
chemosensory receptors that, in turn, engage GABA
(gamma-aminobutyric acid) and CRH (corticotropin-releasing hormone)
neurons in the limbic amygdala system. The activation of these
neural circuits is believed to have the potential to lead to rapid
antidepressant effects without psychological side effects, systemic
exposure or safety concerns often associated with current
antidepressants. Based on positive results of a small exploratory
Phase 2a study in MDD in which rapid-onset antidepressant effects
were observed without psychological side effects or systemic
exposure, we are preparing for planned Phase 2b clinical
development of PH10 as a first-line treatment for MDD.
Additional potential indications for PH94B include post-traumatic
stress disorder (
PTSD
) and general anxiety disorder
(
GAD
)
and others neuropsychiatric indications. Additional potential
indications for AV-101 include as a non-addictive, non-sedating
treatment of chronic neuropathic pain (
CNP
), epilepsy, and to reduce dyskinesia induced by
levodopa therapy for Parkinson’s disease (
PD LID
).
In addition to our CNS business, we have two pipeline-enabling
programs through our wholly-owned subsidiary, VistaStem
Therapeutics (
VistaStem
). VistaStem is focused on applying pluripotent
stem cell (
hPSC
) technology to discover, rescue, develop and
commercialize proprietary new chemical entities
(
NCEs
)
for CNS and other diseases and regenerative medicine
(
RM
) involving hPSC-derived blood, cartilage, heart
and liver cells. Our internal drug rescue programs are designed to
utilize
CardioSafe
3D
, our customized cardiac
bioassay system, to discover and develop small molecule NCEs for
our CNS pipeline or for out-licensing. To advance potential RM
applications of our cardiac stem cell technology, we have
sublicensed to BlueRock Therapeutics LP, a next generation cell
therapy and RM company established by Bayer AG and Versant Ventures
(
BlueRock
Therapeutics
), rights to
certain proprietary technologies relating to the production of
cardiac stem cells for the treatment of heart disease
(the
BlueRock
Agreement
). In a manner
similar to the BlueRock Agreement, we may pursue additional
collaborations or licensing transactions involving blood,
cartilage, and/or liver cells derived from hPSCs for cell-based
therapy, cell repair therapy, RM and/or tissue
engineering.
Subsidiaries
As noted above, VistaStem is our wholly-owned subsidiary. Our
Consolidated Financial Statements in this Annual Report on Form
10-K (
Report
) also include the accounts of 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.
2. Basis of Presentation and Going Concern
The accompanying Consolidated Financial Statements have been
prepared assuming that 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 negative cash flows from operations and recurring
losses resulting in a deficit of $181.1 million accumulated from
inception through March 31, 2019. We expect losses and negative
cash flows from operations to continue for the foreseeable future
as we engage in further development of AV-101, PH94B and PH10,
execute our drug rescue programs and pursue potential drug
development and regenerative medicine opportunities.
Since our inception in May 1998 through March 31, 2019, 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 $79.0 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 such as the Baylor Study),
strategic collaboration payments, intellectual property
sublicensing and other revenues. Additionally, we have issued
equity securities with an approximate value at issuance of $38.1
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.
At March 31, 2019, we had cash and cash equivalents of
approximately $13.1 million.
Our cash position at March 31, 2019 considered with our recurring
and anticipated losses, negative cash flows from operations and
limited stockholders’ equity make it probable, in the absence
of additional financing, that we will not have sufficient resources
to fund our planned operations for the twelve months following the
issuance of these financial statements, during which time we plan
to complete our ELEVATE study, prepare for and launch a pivotal
Phase 3 clinical trial of PH94B, prepare for additional Phase 2
clinical studies and certain nonclinical studies involving AV-101
and prepare for a Phase 2b clinical trial of PH10, and raises
substantial doubt that we can continue as a going concern.
Nevertheless, when necessary and advantageous, we plan to raise
additional capital, primarily through the sale of our equity
securities in one or more private placements to accredited
investors or in public offerings. Subject to certain restrictions,
our effective Registration Statement on Form S-3 (Registration No.
333-215671) (the
S-3 Registration
Statement
) remains available
for future sales of our equity securities in one or more public
offerings from time to time. While we may make additional sales of
our equity securities under the S-3 Registration Statement, we do
not have an obligation to do so. As we have been in the past, we
expect that, if 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 or
institutions.
In
addition to the potential sale of our equity securities, we may
also seek to enter research, development and/or commercialization
collaborations that could generate revenue or provide funding,
including non-dilutive funding, for development of AV-101, PH94B,
PH10 and/or additional product candidates. We may also seek
additional government grant awards or agreements similar, for
example, to our recent CRADA with the NIMH, which provided for the
NIMH to fully fund the NIMH Study, or similar to our relationships
with Baylor and the VA in connection with the Baylor Study. 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 BlueRock
Agreement with other parties. Although we may seek additional
collaborations that could generate revenue and/or provide
non-dilutive funding for development of AV-101, PH94B, PH10 or
other 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, the scope and nature of
opportunities related to our success and the success of certain
other companies in 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
AV-101, PH94B, PH10 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 research
and development, investor relations and corporate development,
legal, acquisition and protection of intellectual property, public
company compliance and other professional services and operating
costs.
Notwithstanding the foregoing, there can be no assurance 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
2019 and beyond, 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
Consolidated Financial Statements do not include any adjustments
that might result from the negative outcome of this
uncertainty.
3. Summary of Significant Accounting
Policies
Use of Estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles
(
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, but are not limited to, those
relating to stock-based compensation, revenue recognition, research
and development expenses and the assumptions used to value
warrants, warrant modifications and warrant
liabilities.
Principles of Consolidation
The accompanying consolidated financial statements include the
Company’s accounts, VistaStem’s accounts and the
accounts of VistaStem’s two wholly-owned inactive
subsidiaries, Artemis Neurosciences and VistaStem Canada. All
material intercompany accounts and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents are considered to be highly liquid
investments with maturities of three months or less at the date of
purchase.
Property and Equipment
Property and equipment is stated at cost. Repairs and maintenance
costs are expensed in the period incurred. Depreciation is
calculated using the straight-line method over the estimated useful
lives of the assets. The estimated useful lives of property and
equipment range from three to seven years.
Impairment of Long-Lived Assets
Our
long-lived assets consist of property and equipment. Long-lived
assets to be held and used are tested for recoverability whenever
events or changes in business circumstances indicate that the
carrying amount of the assets may not be fully recoverable. Factors
that we consider in deciding when to perform an impairment review
include significant underperformance of the business in relation to
expectations, significant negative industry or economic trends, and
significant changes or planned changes in our use of the assets. An
impairment loss would be recognized when estimated undiscounted
future cash flows expected to result from the use of an asset are
less than its carrying amount. The impairment loss would be based
on the excess of the carrying value of the impaired asset over its
fair value, determined based on discounted cash flows. To date, we
have not recorded any impairment losses on long-lived
assets.
Revenue Recognition
We have historically generated revenue principally from
collaborative research and development arrangements, licensing and
technology transfer agreements, including strategic licenses or
sublicenses, and government grants.
We adopted Accounting
Standards Update (
ASU
) No.
2014-09,
Revenue from Contracts
with Customers (Topic 606)
and its related amendments,
collectively referred to as ASC (
Accounting Standards Codification
)
Topic 606, as of April 1, 2018, using the modified retrospective
transition method. At adoption and currently, we have only the
BlueRock Agreement as a potential revenue generating arrangement.
Upon adoption of ASC Topic 606, there was no change to the units of
accounting previously identified with respect to the BlueRock
Agreement under legacy GAAP, which are now considered performance
obligations under ASC Topic 606, and there was no change to the
revenue recognition pattern for the performance obligation.
Accordingly, there was no cumulative effect change to our opening
accumulated deficit upon the adoption of ASC Topic
606.
Under
ASC Topic 606, we recognize revenue when our customer obtains
control of promised goods or services, in an amount that reflects
the consideration that we expect to receive in exchange for those
goods or services. To determine revenue recognition for
arrangements that we determine are within the scope of Topic 606,
we perform the following five steps: (i) identify the contract with
a customer; (ii) identify the performance obligations in the
contract; (iii) determine the transaction price, including variable
consideration, if any; (iv) allocate the transaction price to the
performance obligations in the contract; and (v) recognize revenue
when (or as) we satisfy a performance obligation. We only apply the
five-step model to contracts when it is probable that we will
collect the consideration to which we are entitled in exchange for
the goods or services we transfer to a customer.
Once a
contract is determined to be within the scope of Topic 606, we
assesses the goods or services promised within each contract and
determine those that are performance obligations. Arrangements that
include rights to additional goods or services that are exercisable
at a customer’s discretion are generally considered options.
We assess whether these options provide a material right to the
customer and if so, they are considered performance obligations.
The exercise of a material right may be accounted for as a contract
modification or as a continuation of the contract for accounting
purposes.
We
assess whether each promised good or service is distinct for the
purpose of identifying the performance obligations in the contract.
This assessment involves subjective determinations and requires
judgments about the individual promised goods or services and
whether such are separable from the other aspects of the
contractual relationship. Promised goods and services are
considered distinct provided that: (i) the customer can benefit
from the good or service either on its own or together with other
resources that are readily available to the customer (that is, the
good or service is capable of being distinct) and (ii) our promise
to transfer the good or service to the customer is separately
identifiable from other promises in the contract (that is, the
promise to transfer the good or service is distinct within the
context of the contract). In assessing whether a promised good or
service is distinct in the evaluation of a collaboration
arrangement subject to Topic 606, we consider factors such as the
research, manufacturing and commercialization capabilities of the
collaboration partner and the availability of the associated
expertise in the general marketplace. We also consider the intended
benefit of the contract in assessing whether a promised good or
service is separately identifiable from other promises in the
contract. If a promised good or service is not distinct, we are
required to combine that good or service with other promised goods
or services until we identify a bundle of goods or services that is
distinct.
The
transaction price is then determined and allocated to the
identified performance obligations in proportion to their
standalone selling prices (
SSP
) on a relative SSP basis. SSP is
determined at contract inception and is not updated to reflect
changes between contract inception and satisfaction of the
performance obligations. Determining the SSP for performance
obligations requires significant judgment. In developing the SSP
for a performance obligation, we consider applicable market
conditions and relevant Company-specific factors, including factors
that were contemplated in negotiating the agreement with the
customer and estimated costs. In certain circumstances, we may
apply the residual method to determine the SSP of a good or service
if the standalone selling price is considered highly variable or
uncertain. We validate the SSP for performance obligations by
evaluating whether changes in the key assumptions used to determine
the SSP will have a significant effect on the allocation of
arrangement consideration between multiple performance
obligations.
If the
consideration promised in a contract includes a variable amount, we
estimate the amount of consideration to which we will be entitled
in exchange for transferring the promised goods or services to a
customer. We determine the amount of variable consideration by
using the expected value method or the most likely amount method.
We include the unconstrained amount of estimated variable
consideration in the transaction price. The amount included in the
transaction price is constrained to the amount for which it is
probable that a significant reversal of cumulative revenue
recognized will not occur. At the end of each subsequent reporting
period, we re-evaluate the estimated variable consideration
included in the transaction price and any related constraint, and
if necessary, adjust our estimate of the overall transaction price.
Any such adjustments are recorded on a cumulative catch-up basis in
the period of adjustment.
If an
arrangement includes development and regulatory milestone payments,
we evaluate whether the milestones are considered probable of being
reached and estimate the amount to be included in the transaction
price using the most likely amount method. If it is probable that a
significant revenue reversal would not occur, the associated
milestone value is included in the transaction price. Milestone
payments that are not within our control or the licensee’s
control, such as regulatory approvals, are generally not considered
probable of being achieved until those approvals are
received.
In
determining the transaction price, we adjust consideration for the
effects of the time value of money if the timing of payments
provides us with a significant benefit of financing. We do not
assess whether a contract has a significant financing component if
the expectation at contract inception is such that the period
between payment by the licensee and the transfer of the promised
goods or services to the licensee will be one year or less. For
arrangements with licenses of intellectual property that include
sales-based royalties, including milestone payments based on the
level of sales, and the license is deemed to be the predominant
item to which the royalties relate, we recognize royalty revenue
and sales-based milestones at the later of (i) when the related
sales occur, or (ii) when the performance obligation to which the
royalty has been allocated has been satisfied.
We then
recognize as revenue the amount of the transaction price that is
allocated to the respective performance obligation when (or as)
each performance obligation is satisfied at a point in time or over
time, and if over time, based on the use of an output or input
method.
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 nonclinical
development of AV-101, PH94B and PH10, stem cell research and
development costs, and costs related to the application and
prosecution of patents related to AV-101 and 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 (
CRO
s) and clinical trial sites. Progress payments are
generally made to CROs, clinical sites, investigators and other
professional service providers. We analyze the progress of the
clinical trial, including levels of subject enrollment, invoices
received and contracted costs when evaluating the adequacy of
accrued liabilities. Significant judgments and estimates must be
made 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. In September 2018, we acquired an exclusive license to
develop and commercialize PH94B and an option to acquire a license
to develop and commercialize PH10 by issuing an aggregate of
1,630,435 unregistered shares of our common stock having a fair
market value of $2,250,000.
In October 2018, we exercised
our option to acquire an exclusive license to develop and
commercialize PH10 by issuing 925,926 shares of our unregistered
common stock having a fair market value of $2,000,000.
Since, at the date of each acquisition, neither
product candidate had achieved regulatory approval and each will
require significant additional development and expense, we recorded
the costs related to acquiring the licenses and the option as
research and development expense.
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 stock-based compensation
expense over the period during which the employee 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. For option
grants to non-employees, we have historically re-measured the fair
value of the awards as they vest and any resulting increase in
value has been recognized as an expense during the period over
which the services are performed. Noncash expense attributable to
compensatory grants of 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 expensed
ratably over the term of the related service agreement, depending
on the terms of the specific agreement.
Income Taxes
We account for income taxes using the asset and liability approach
for financial reporting purposes. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Valuation allowances are
established, when necessary, to reduce the deferred tax assets to
an amount expected to be realized.
Concentrations of Credit Risk
Financial instruments, which potentially subject us to
concentrations of credit risk, consist of cash and cash
equivalents. Our investment policies limit any such investments to
short-term, low-risk investments. We deposit cash and cash
equivalents with quality financial institutions and are insured to
the maximum of federal limitations. Balances in these accounts may
exceed federally insured limits at times.
Fair Value Measurements
We do not use derivative instruments for hedging of market risks or
for trading or speculative purposes. When applicable, we follow the
principles of fair value accounting as they relate to our financial
assets and financial liabilities. Fair value is defined as the
estimated exit price received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants
at the measurement date, rather than an entry price that represents
the purchase price of an asset or liability. Where
available, fair value is based on observable market prices or
parameters, or derived from such prices or
parameters. Where observable prices or inputs are not
available, valuation models are applied. These valuation
techniques involve some level of management estimation and
judgment, the degree of which is dependent on several factors,
including the instrument’s complexity. The
required fair value hierarchy that prioritizes observable and
unobservable inputs used to measure fair value into three broad
levels is described as follows:
●
Level 1
—
Quoted prices (unadjusted) in active markets that are accessible at
the measurement date for assets or liabilities. The fair value
hierarchy gives the highest priority to Level 1
inputs.
●
Level 2
—
Inputs other than Level 1 that are observable, either directly
or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities.
●
Level 3
—
Unobservable inputs (
i.e.,
inputs that reflect the reporting entity’s
own assumptions about the assumptions that market participants
would use in estimating the fair value of an asset or liability)
are used when little or no market data is available. The fair value
hierarchy gives the lowest priority to Level 3
inputs.
A financial instrument’s categorization within the valuation
hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. Where quoted
prices are available in an active market, securities are classified
as Level 1 of the valuation hierarchy. If quoted market prices
are not available for the specific financial instrument, then we
estimate fair value by using pricing models, quoted prices of
financial instruments with similar characteristics or discounted
cash flows. In certain cases where there is limited activity or
less transparency around inputs to valuation, financial assets or
liabilities are classified as Level 3 within the valuation
hierarchy.
We carried no assets or liabilities that are measured on a
recurring basis at fair value at March 31, 2019 or
2018.
Warrants Issued in Connection with Equity Financing
We generally account for warrants issued in connection with equity
financings as a component of equity, unless there is a deemed
possibility that we may have to settle the warrants in cash or the
warrants contain other features requiring them to be treated as
liabilities. For warrants issued with the possibility of cash
settlement, or otherwise requiring liability treatment, we record
the fair value of the issued warrants as a liability at each
reporting period and record changes in the estimated fair value as
noncash gain or loss in the Consolidated Statements of Operations
and Comprehensive Loss.
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 Attributable to Common
Stockholders
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 for dividends on
our Series B Preferred and, for the fiscal year ended March 31,
2018, the deemed dividend attributable to the trigger of a
down-round provision feature (refer to Note 9,
Capital Stock
, for a description of
this adjustment),
by the
weighted-average number of shares of common stock outstanding for
the period. Diluted net loss attributable to common stockholders
per share of common stock reflects the potential dilution that
could occur if securities or other contracts to issue shares of
common stock were exercised or converted into shares of common
stock. In calculating diluted net loss attributable to common
stockholders per share, we have generally not increased the
denominator to include the number of potentially dilutive common
shares assumed to be outstanding during the period using the
treasury stock method because the result is
antidilutive.
As a result of our net loss for both years presented, potentially
dilutive securities were excluded from the computation of diluted
loss per share, as their effect would be antidilutive.
Basic and diluted net loss attributable to common stockholders per
share was computed as follows:
|
|
Fiscal Years Ended March 31,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Numerator:
|
|
|
|
Net
loss attributable to common stockholders for basic and diluted
earnings
|
|
|
|
per
share
|
$
(25,729,500
)
|
$
(15,575,500
)
|
|
|
|
|
|
Denominator:
|
|
|
|
Weighted
average basic and diluted common shares outstanding
|
28,562,490
|
13,890,041
|
|
|
|
|
|
Basic
and diluted net loss attributable to common stockholders per common
share
|
$
(0.90
)
|
$
(1.12
)
|
Potentially dilutive securities excluded in determining diluted net
loss per common share for the fiscal years ended March 31, 2019 and
2018 are as follows:
|
|
As of March 31,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
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 Amended and Restated 2016 (formerly 2008) Stock
Incentive Plan
|
6,626,088
|
5,300,338
|
|
Outstanding
warrants to purchase common stock
|
21,453,402
|
16,603,516
|
|
|
|
|
|
Total
|
32,307,742
|
26,132,106
|
|
____________
|
|
|
|
(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 common shares 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
|
||
Recent Accounting Pronouncements
We
believe the following recent accounting pronouncements or changes
in accounting pronouncements are of significance or potential
significance to the Company.
In
February 2016, the Financial Accounting Standards Board
(
FASB
) issued Accounting
Standards Update (
ASU
)
2016-02,
Leases
(
ASC 842
), which will
replace the existing guidance in ASC 840,
Leases
, and which sets out the
principles for the recognition, measurement, presentation and
disclosure of leases for both parties to a contract (i.e. lessees
and lessors). The new standard requires lessees to apply a dual
approach, classifying leases as either finance or operating leases
based on the principle of whether or not the lease is effectively a
financed purchase by the lessee. This classification will determine
whether lease expense is recognized based on an effective interest
method or on a straight-line basis over the term of the lease,
respectively. A lessee is also required to record a right-of-use
asset and a lease liability for all leases with a term of greater
than 12 months regardless of their classification. Leases with a
term of 12 months or less will be accounted for similar to the
current guidance for operating leases. This standard becomes
effective for our fiscal year beginning April 1, 2019. We estimate
that we will record lease liabilities of approximately $4.5 million
and right-of-use assets approximating $4.1 million upon
implementation of ASC 842. We have evaluated our contracts with
clinical research and manufacturing organizations and determined
that such contracts do not contain embedded leases.
In June
2018, the FASB issued ASU 2018-07,
Compensation-Stock Compensation (Topic 718),
Improvements to Nonemployee Share-Based Payment Accounting
(
ASU 2018-07
). ASU 2018-07
expands the scope of Topic 718 to include share-based payment
transactions for acquiring goods and services from nonemployees.
ASU 2018-07 aligns the accounting for share-based payment awards
issued to employees and non-employees. Under ASU 2018-07, the
existing guidance regarding share-based transactions with employees
will apply to share-based transactions with non-employees, as long
as the transaction is not effectively a form of financing, with the
exception of specific guidance related to the attribution of
compensation cost. The cost of non-employee awards will continue to
be recorded as if the grantor had paid cash for the goods or
services. In addition, the contractual term may be used in lieu of
an expected term in the option-pricing model for non-employee
awards. ASU 2018-07 is effective for our fiscal year beginning
April 1, 2019. We are evaluating the impact of this new guidance,
but we do not believe that our adoption of ASU 2018-17 will have a
material impact on our consolidated
financial
statements.
In July
2017, the Financial Accounting Standards Board (
FASB
) issued Accounting Standards
Update (
ASU
) 2017-11,
“
Earnings Per Share (Topic
260)
;
Distinguishing
Liabilities from Equity (Topic 480)
;
Derivatives and Hedging (Topic 815): Part I:
Accounting for Certain Financial Instruments with Down Round
Features; Part II: Replacement of the Indefinite Deferral for
Mandatorily Redeemable Financial Instruments of Certain Nonpublic
Entities and Certain Mandatorily Redeemable Noncontrolling
Interests with a Scope Exception” (ASU 2017-11)
. Part
I of this ASU provides that an entity will no longer have to
consider “down round” features (i.e., a provision in an
equity-linked financial instrument, such as a free-standing
warrant, or an embedded feature, such as a conversion option in a
convertible instrument, that reduces the exercise price of such
instrument if the entity subsequently sells stock for a lower price
or issues an equity-linked instrument with a lower exercise price)
when determining whether certain equity-linked financial
instruments or embedded features are indexed to its own stock. The
definition of a down round feature in ASU 2017-11 excludes standard
antidilution provisions related to changes in an entity’s
capital structure. Accounting Standards Codification Topic 815-40,
“Derivatives and Hedging–Contracts in Entity’s
Own Equity” (
ASC
815-40
) requires that a freestanding equity-linked financial
instrument be indexed to the issuer’s own stock to be
classified as equity. An equity-linked embedded feature that meets
the definition of a derivative may avoid bifurcation and derivative
accounting if it is indexed to the issuer’s own stock. Under
the terms of prior guidance, a freestanding financial instrument or
embedded feature was not considered indexed to the issuer’s
own stock if it had a down round provision. Consequently, the
freestanding financial instrument was classified as a liability (or
asset), and if it met the definition of a derivative, was measured
at fair value with changes in fair value recorded through earnings.
Similarly, an embedded feature was bifurcated and separately
accounted for as a derivative if it met all other criteria for
bifurcation under ASC 815-40. The bifurcated embedded feature was
also measured at fair value through earnings. Under the provisions
of ASU 2017-11, an entity that presents earnings per share
(
EPS
) under Accounting
Standards Codification Topic 260, “Earnings Per Share”
will recognize the effect of a down round feature in a freestanding
equity-classified financial instrument only when it is triggered.
The effect of triggering such a feature will be recognized as a
dividend and a reduction to income available to common shareholders
in basic EPS. The new guidance requires new disclosures for
financial instruments with down round features and other terms that
change conversion or exercise prices. Part I of ASU 2017-11 became
effective for fiscal years beginning after December 15, 2018,
however early adoption was permitted. We early-adopted ASU 2017-11
effective for our fiscal quarter ended September 30, 2017 and
applied its guidance to certain of the warrants issued in the
September 2017 Public Offering, as described more completely in
Note 9,
Capital Stock
. No
retrospective adjustment to our consolidated financial statements
was required as a result of our adoption of ASU
2017-11.
In May
2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic
606)
, to provide guidance on revenue recognition. In August
2015 and March, April, May and December 2016, the FASB issued
additional amendments to the new revenue guidance relating to
reporting revenue on a gross versus net basis, identifying
performance obligations, licensing arrangements, collectability,
noncash consideration, presentation of sales tax, transition, and
clarifying examples. Collectively these are referred to as ASC
Topic 606, which replaces all legacy GAAP guidance on revenue
recognition and eliminates all industry-specific guidance. The new
revenue recognition guidance provides a unified model to determine
how revenue is recognized. The core principal of the guidance is
that an entity should recognize revenue when it transfers promised
goods or services to customers in an amount that reflects the
consideration to which the company expects to be entitled in
exchange for those goods or services. ASC Topic 606 defines a
five-step process to achieve this core principal which may require
entities to use more judgment and make more estimates than under
legacy guidance. These estimates and judgments include identifying
performance obligations in the contract, estimating the amount of
variable consideration to include in the transaction price and
allocating the transaction price to each distinct performance
obligation. We adopted ASC Topic 606 as of April 1, 2018, using the
modified retrospective transition method, applying the new guidance
to the most current period presented. At adoption and currently, we
have only the BlueRock Agreement as a potential revenue generating
arrangement. We identified no change to the units of accounting
previously identified with respect to that contract under legacy
GAAP, which are now considered performance obligations under ASC
Topic 606, nor did we identify any change to the revenue
recognition pattern for the performance obligation. Accordingly, we
did not recognize a cumulative effect change to our opening
accumulated deficit upon our adoption of ASC Topic
606.
In May 2017, the FASB issued ASU 2017-09,
Compensation - Stock Compensation (Topic
718):
Scope
of Modification Accounting
, to
clarify which changes to the terms or conditions of a share-based
payment award require an entity to apply modification accounting
under ASC 718. Under this guidance, an entity will not apply
modification accounting to a share-based payment award if all of
the following remain unchanged immediately before and after the
change of terms and conditions:
●
The
award’s fair value (or calculated value or intrinsic value,
if those measurement methods are used),
●
The
award’s vesting conditions, and
●
The
award’s classification as an equity or liability
instrument.
We adopted ASU 2017-09 effective for our fiscal year beginning
April 1, 2018. Our adoption of ASU 2017-09 did not have a material
impact on our financial statements.
Other
accounting standards that have been issued or proposed by the FASB
or other standards-setting bodies that do not require adoption
until a future date are not expected to have a material impact on
our consolidated financial statements upon adoption.
4. Receivable from Supplier
This amount reflects the balance of a prepayment made to a supplier
that is to be refunded due to the termination of the underlying
contract prior to March 31, 2019.
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the
following:
|
|
March 31,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
AV-101
and PH94B materials and contract services
|
$
5,900
|
$
505,900
|
|
Fair
value of securities issued for professional services
|
105,900
|
-
|
|
Insurance
|
96,300
|
88,300
|
|
Public
offering filing fees and expenses
|
22,300
|
25,900
|
|
All
other
|
20,500
|
24,700
|
|
|
|
|
|
|
$
250,900
|
$
644,800
|
6. Property and Equipment
Property and equipment consists of the following:
|
|
March 31,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Laboratory
equipment
|
$
892,500
|
$
888,300
|
|
Tenant
improvements
|
214,400
|
26,900
|
|
Computers
and network equipment
|
54,600
|
54,600
|
|
Office
furniture and equipment
|
84,600
|
79,700
|
|
|
1,246,100
|
1,049,500
|
|
|
|
|
|
Accumulated
depreciation and amortization
|
(933,400
)
|
(842,100
)
|
|
|
|
|
|
Property
and equipment, net
|
$
312,700
|
$
207,400
|
The increase in tenant improvements reflects recently completed
construction at our South San Francisco, California offices. Under
the terms of our November 2016 lease extension agreement, our
landlord has provided a cash reimbursement of $158,600 of such
tenant improvement costs. Such reimbursement is a component of the
deferred rent liability shown on our Consolidated Balance Sheet at
March 31, 2019.
The following table summarizes depreciation and amortization
expense attributable to owned and leased property and equipment for
the fiscal years ended March 31, 2019 and 2018:
|
|
Fiscal Years Ended March 31,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Owned
assets
|
$
88,300
|
$
77,800
|
|
Leased
assets
|
2,900
|
2,900
|
|
|
|
|
|
Total
depreciation and amortization
|
$
91,200
|
$
80,700
|
Other than certain leased office equipment, none of our assets were
subject to third party security interests at March 31, 2019 or
2018.
7. Accrued Expenses
Accrued expenses consist of:
|
|
March 31,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Accrued
AV-101 clinical trial, development, and
|
|
|
|
related
expenses
|
$
1,067,600
|
$
176,600
|
|
Accrued
compensation
|
439,200
|
-
|
|
Accrued
professional services
|
172,100
|
27,000
|
|
All
other
|
6,700
|
2,700
|
|
|
|
|
|
|
$
1,685,600
|
$
206,300
|
8. Notes Payable
The following table summarizes our notes payable:
|
|
|
March 31, 2019
|
|
March 31, 2018
|
||||
|
|
|
Principal
|
Accrued
|
|
|
Principal
|
Accrued
|
|
|
|
|
Balance
|
Interest
|
Total
|
|
Balance
|
Interest
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
7.75% (2019) and 7.15% (2018) Notes payable
|
|
|
|
|
|
|
|
|
|
to insurance premium financing company (current)
|
|
$ 57,300
|
$ -
|
$ 57,300
|
|
$ 53,900
|
$ -
|
$ 53,900
|
In February 2018, we executed a 7.15% promissory note in the
principal amount of $59,700 in connection with certain insurance
policy premiums. That note was payable in monthly installments of
$6,200, including principal and interest, through December 2018,
when it was paid in full. In May 2018, we executed a 6.50%
promissory note in the principal amount of $160,500 in connection
with other insurance policy premiums. That note was payable in
monthly installments of $16,500, including principal and interest,
through March 2019, when it was paid in full. In February 2019, we
executed a 7.75% promissory note in the face amount of $63,500 in
connection with other insurance policy premiums. The note is
payable in monthly installments of $6,600, including principal and
interest, through December 2019, and has an outstanding balance of
$57,300 at March 31, 2019.
9. Capital Stock
Common Stock
At our
Annual Meeting of Stockholders on September 15, 2017, as approved
by and recommended to our stockholders by our Board of Directors
(
Board
), our stockholders
approved an amendment to our Restated Articles of Incorporation to
increase the authorized number of shares of common stock that we
may issue from 30.0 million shares to 100.0 million shares. The
amendment became effective on September 15, 2017, upon our filing
of a certificate of amendment with the Nevada Secretary of State.
In connection with the underwritten public offering of our common
stock and warrants in May 2016, our common stock was approved for
listing on the Nasdaq Capital Market. Our common stock has been
trading on the Nasdaq Capital Market under the symbol
“VTGN” since May 11, 2016.
Series A Preferred Stock
In December 2011, our Board authorized the creation of a series of
up to 500,000 shares of Series A Preferred, par value $0.001
(
Series A
Preferred
). Each
restricted share of Series A Preferred is currently convertible at
the option of the holder into one and one-half restricted shares of
our common stock. The Series A Preferred ranks prior to
the common stock for purposes of liquidation
preference.
The Series A Preferred has no separate dividend rights, however,
whenever the Board declares a dividend on the common stock, each
holder of record of a share of Series A Preferred shall be entitled
to receive an amount equal to such dividend declared on one share
of common stock multiplied by the number of shares of common stock
into which such share of Series A Preferred could be converted on
the applicable record date.
Except with respect to transactions upon which the Series A
Preferred shall be entitled to vote separately as a class, the
Series A Preferred has no voting rights. The restricted common
stock into which the Series A Preferred is convertible shall, upon
issuance, have all of the same voting rights as other issued and
outstanding shares of our common stock.
In the event of the liquidation, dissolution or winding up of our
affairs, after payment or provision for payment of our debts and
other liabilities, the holders of Series A Preferred then
outstanding shall be entitled to receive
distributions out
of our assets, if any,
an amount per
share of Series A Preferred calculated by taking the total amount
available for distribution to holders of all of our outstanding
common stock before deduction of any preference payments for the
Series A Preferred, divided by the total of (x), all of the then
outstanding shares of our common stock, plus (y) all of the shares
of our common stock into which all of the outstanding shares of the
Series A Preferred can be converted before any payment shall be
made or any assets distributed to the holders of the common stock
or any other junior stock.
At March 31, 2019 and 2018, there were 500,000 restricted shares of
Series A Preferred outstanding, convertible into 750,000 shares of
our common stock at the option of the two respective
holders.
Series B Preferred Stock
In July 2014, our Board authorized the creation of a class of
Series B Preferred Stock, par value $0.001 (
Series B
Preferred
). In May 2015, we
filed a Certificate of Designation of the Relative Rights and
Preferences of the Series B 10% Preferred Stock of VistaGen
Therapeutics, Inc. (
Certificate of
Designation
) with the Nevada
Secretary of State to designate 4.0 million shares of our
authorized preferred stock as Series B
Preferred.
Each share of Series B Preferred is convertible, at the option of
the holder (
Voluntary
Conversion
), into one (1) share
of our common stock, subject to adjustment only for customary stock
dividends, reclassifications, splits and similar transactions set
forth in the Certificate of Designation. Outstanding shares of
Series B Preferred are also convertible automatically on a
one-to-one basis into shares of our common stock
(
Automatic
Conversion
) upon the closing or
effective date of any of the following transactions or events: (i)
a strategic transaction involving AV-101 with an initial up-front
cash payment to us of at least $10.0 million; (ii) a registered
public offering of our common stock with aggregate gross proceeds
to us of at least $10.0 million; or (iii) for 20 consecutive
trading days, our common stock trades at least 20,000 shares per
day with a daily closing price of at least $12.00 per share;
provided, however, that Automatic Conversion and Voluntary
Conversion (collectively,
Conversion
) are subject to certain beneficial ownership
blockers as set forth in the Certificate of Designation and/or
securities purchase agreements. Following the completion of our
underwritten public offering in May 2016, which occurred
concurrently with and facilitated the listing of our common stock
on the NASDAQ Capital Market, approximately 2.4 million shares of
Series B Preferred were converted automatically into approximately
2.4 million shares of our common stock pursuant to the Automatic
Conversion provision. There have been no conversions of Series B
Preferred since August 2016.
Prior to Conversion, shares of Series B Preferred accrue in-kind
dividends (payable only in unregistered shares of our common stock)
at a rate of 10% per annum (
Accrued
Dividends
). The
Accrued Dividends are payable on the date of either a Voluntary
Conversion or Automatic Conversion in that number of shares of
common stock equal to the Accrued Dividends. At March 31, 2019, we
have recognized a liability in the amount of $3,748,200 for Accrued
Dividends in the
accompanying Consolidated Balance Sheet at
March 31, 2019,
based on the Series B
Preferred issued and outstanding through that date. We have
recognized a deduction from net loss of $1,139,900 and $1,030,400
related to dividends on Series B Preferred in arriving at net loss
attributable to common stockholders in the
accompanying
Consolidated Statement of Operations and Comprehensive Loss for the
fiscal years ended March 31, 2019 and 2018,
respectively.
In the
event of the liquidation, dissolution or winding-up of our affairs,
after payment or provision for payment
of our debts and other liabilities,
the Holders of the
Series B Preferred then outstanding shall be entitled to receive
distributions out of our assets, if any, an amount equal to the
Stated Value of the Series B Preferred ($7.00 per share), plus any
accrued and unpaid dividends thereon,
before any distribution or payment shall be made
to the holders of any junior securities, including holders of our
common stock. If our assets are insufficient to pay, in full, such
amounts, then the entire assets to be distributed to the holders of
the Series B Preferred shall be ratably distributed among the
holders in accordance with the respective amounts that would be
payable on such shares if all amounts payable thereon were paid in
full. Upon liquidation, each share of Series B Preferred ranks
pari-passu with our Series A Preferred and our Series C Preferred
(defined below).
The liquidation value of the Series B
Preferred at March 31, 2019 is approximately
$11,869,800.
At March 31, 2019 and 2018, there were 1,160,240 shares of Series B
Preferred outstanding, which shares are subject to beneficial
ownership blockers and are exchangeable at the option of the two
respective holders by Voluntary Conversion, or pursuant to
Automatic Conversion to the extent not otherwise subject to
beneficial ownership blockers, into an aggregate of 1,160,240
shares of our common stock, excluding shares of our common stock
which may be issued in payment of Accrued Dividends upon
conversion.
Series C Preferred Stock
In
January 2016, our Board authorized the creation of and,
accordingly,
we filed a Certificate of
Designation of the Relative Rights and Preferences of the Series C
Convertible Preferred Stock of VistaGen Therapeutics, Inc.
(the
Series
C Preferred
Certificate of
Designation
) with the Nevada
Secretary of State to designate 3.0 million shares of our preferred
stock, par value $0.001 per share, as Series C Convertible
Preferred Stock (
Series C
Preferred
).
In the event of the liquidation, dissolution or winding up of our
affairs, after payment or provision for payment of our debts and
other liabilities, the holders of Series C Preferred then
outstanding shall be entitled to receive, out of our assets, if
any, an amount per share of Series C Preferred calculated by taking
the total amount available for distribution to holders of all of
our outstanding common stock before deduction of any preference
payments for the Series C Preferred, divided by the total of (x),
all of the then outstanding shares of our common stock, plus (y)
all of the shares of our common stock into which all of the
outstanding shares of the Series C Preferred can be exchanged
before any payment shall be made or any assets distributed to the
holders of the common stock or any other junior stock. Upon
liquidation, each share of Series C Preferred ranks pari-passu with
our Series B Preferred and our Series A Preferred.
Each share of Series C Preferred is convertible, at the option of
the holder into one share of our common stock, subject to certain
beneficial ownership limitations as set forth in the Series C
Preferred Certificate of Designation. Shares of the Series C
Preferred do not accrue dividends, and holders of the Series C
Preferred have no voting rights. At March 31, 2019 and 2018, one
holder and its affiliates held all 2,318,012 outstanding shares of
Series C Preferred.
Common Stock and Warrants Issued in September 2017 Public
Offering
On September 6, 2017, we completed a public offering of units
consisting of shares of common stock and Series A1 and A2 common
stock purchase warrants to two of our existing institutional
investors (the
September 2017 Public
Offering
), resulting in gross
proceeds of approximately $2.4 million. We issued an aggregate of
1,371,430 shares of our common stock, Series A1 Warrants to
purchase up to 1,388,931 shares of common stock and Series A2
Warrants to purchase up to 503,641 of common stock (collectively,
the
Warrants
), each exercisable for $1.82 per share. The
Series A1 Warrants became exercisable by the investors for a
five-year period commencing on March 7, 2018, and the Series A2
Warrants were immediately exercisable at any time through September
6, 2022. The common stock and the shares of common stock underlying
the Warrants issued in the September 2017 Public Offering were
offered, issued and sold pursuant to our S-3 Registration Statement
(Registration No. 333-215671)
that had previously been
declared effective by the Securities and Exchange Commission (the
Commission
) to cover this
and potential future sales of our equity securities in one or more
public offerings from time to time.
We
received net proceeds of approximately $2.0 million from the
September 2017 Public Offering, after deducting underwriter’s
commission and other expenses related to the
offering.
The Series A1 Warrants to purchase an aggregate of 1,388,931 shares
of our common stock issued in the September 2017 Public Offering
have no anti-dilution or other exercise price or share reset
features, except as is customary with respect to a change in our
capital structure in the event of a stock split or dividend, and,
accordingly, we accounted for them as equity warrants. T
he
Series A2 Warrants to purchase an aggregate of 503,641 shares of
our common stock contained anti-dilution protection provisions that
would take effect upon the issuance of any common stock, securities
convertible into common stock or certain other issuances at a price
below the then-current ($1.82 per share) exercise price of the
Series A2 Warrants, with certain exceptions; provided, however,
that such anti-dilution protection would terminate automatically on
the trading day following the date on which we raised at least
$20.0 million in aggregate gross proceeds through one or more
issuances of common stock or equity-linked securities. The
anti-dilution protection provisions in the Series A2 Warrants
constituted a down round feature subject to the guidance in ASU
2017-11. Since the Series A2 Warrants contained no other provisions
which required their treatment as liability warrants rather than
equity warrants, including
exercise
price or share reset features, except as is customary with respect
to a change in our capital structure in the event of a stock split
or dividend and which are also present in the Series A1 Warrants,
we also accounted for the Series A2 Warrants as equity warrants.
The anti-dilution protection provisions of the Series A2
Warrants
were triggered upon our issuance of common stock
and warrants in the December 2017 Public Offering (defined below)
at a price below the Series A2 Warrants’ then-current $1.82
per share exercise price.
Common Stock and Warrants Issued in December 2017 Public Offering
and Trigger of Anti-Dilution Protection Provisions of Series A2
Warrants Issued in September 2017 Public Offering
On December 13, 2017, we completed a public offering of units
consisting of shares of common stock and common stock purchase
warrants at a combined public offering price of $1.50 per share and
related warrant (the
December 2017 Public
Offering
), resulting in gross
proceeds of $15.0 million. We issued an aggregate of 10,000,000
shares of our common stock and warrants to purchase up to
10,000,000 shares of our common stock at an exercise price of $1.50
per share (the
December 2017 Offering
Warrants
). The common stock and
the shares of common stock underlying the December 2017 Offering
Warrants issued in the December 2017 Public Offering were offered,
issued and sold pursuant to our Registration Statement on Form S-1
(Registration No. 333-221009)
that was declared effective by
the Commission on December 11, 2017. Th
e December 2017 Offering Warrants are exercisable
at any time through December 13, 2022, have no anti-dilution or
other exercise price or share reset features, except as is
customary with respect to a change in our capital structure in the
event of a stock split or dividend, and do not contain any cashless
exercise features as long as our Registration Statement on Form S-1
(Registration No. 333-221009) is effective. Accordingly, we
accounted for the December 2017 Offering Warrants as equity
warrants. We received net proceeds of approximately $13.6 million
from the December 2017 Public Offering, after deducting
underwriter’s commission and other expenses related to the
offering.
Our
sale of units consisting of common stock and warrants in the
December 2017 Public Offering at an offering price of $1.50 per
unit triggered the anti-dilution provisions of the Series A2
Warrants. In accordance with the anti-dilution terms and formula
contained in the Series A2 warrants, the exercise price of the
Series A2 Warrants was reduced to $0.001 per share. In December
2017 and January 2018, the holders exercised the reset Series A2
warrants to purchase an aggregate of 503,641 shares of our common
stock from which we received nominal cash proceeds. In accordance
with the guidance in ASU 2017-11, we recognized the effect of
triggering the down round feature as a deemed dividend in our
Consolidated Statements of Stockholders’ Equity for the
fiscal year ended March 31, 2018 and as an increase in net loss
attributable to common stockholders and in our calculation of basic
and fully diluted earnings per share in our Consolidated Statements
of Operations and Comprehensive Loss for the fiscal year ended
March 31, 2018.
We
calculated the deemed dividend from the trigger of the down round
provision feature, $199,200, using
the
Black-Scholes Option Pricing Model and the assumptions indicated in
the table below:
|
Assumption:
|
Pre-reset
|
Post-reset
|
|
Market
price per share
|
$
1.17
|
$
1.17
|
|
Exercise
price per share
|
$
1.82
|
$
0.001
|
|
Risk-free
interest rate
|
2.09
%
|
2.09
%
|
|
Remaining
contractual term in years
|
4.73
|
4.73
|
|
Volatility
|
97.8
%
|
97.8
%
|
|
Dividend
rate
|
0.0
%
|
0.0
%
|
|
|
|
|
|
Number
of warrant shares
|
503,641
|
503,641
|
|
Fair value per share
|
$
0.77
|
$
1.17
|
Common Stock Issued in Spring 2019 Public Offering
During
the quarter ended March 31, 2019, we completed an underwritten
public offering of 11,500,000 shares of our common stock, including
the overallotment option, at a public offering price of $1.00 per
share, resulting in gross proceeds to us of $11,500,000, pursuant
to our shelf registration statement on Form S-3 (File No.
333-215671), previously filed with the Commission (the
Spring 2019 Public Offering
). We
received net proceeds of approximately $10.4 million after
deducting underwriter’s commission and offering
expenses.
Common Stock and Warrants Issued in Private Placements in our
Fiscal Year Ended March 31, 2018
During
the quarter ended June 30, 2017, in self-placed private placement
transactions, we accepted subscription agreements from individual
accredited investors, pursuant to which we sold to such investors
units, at a weighted average purchase price of $2.00 per unit,
consisting of an aggregate of 437,751 unregistered shares of our
common stock and warrants, exercisable through April 30, 2021, to
purchase an aggregate of 218,875 unregistered shares of our common
stock at a weighted average exercise price of $3.99 per share. The
purchasers of the units have no registration rights with respect to
the shares of common stock, warrants or the shares of common stock
issuable upon exercise of the warrants comprising the units sold.
The warrants are not exercisable until six months and one day
following the date of issuance. We received aggregate cash proceeds
of $873,300 in connection with these self-placed private placement
transactions, and the entire amount of the proceeds was credited to
stockholders’ equity.
During
the quarter ended September 30, 2017, in a self-placed private
placement transaction, we sold to an accredited investor units
consisting of 28,572 shares of our unregistered common stock and
warrants exercisable through April 30, 2021 to purchase 28,572
unregistered shares of our common stock at an exercise price of
$4.00 per share. The purchaser of the units has no registration
rights with respect to the shares of common stock, warrants or the
shares of common stock issuable upon exercise of the warrants
comprising the units sold. The warrants are not exercisable until
six months and one day following the date of issuance. We received
cash proceeds of $50,000 from this sale of our securities, and the
entire amount of the proceeds was credited to stockholders’
equity.
During
the quarter ended December 31, 2017, in a self-placed private
placement transaction, we sold to an accredited investor units
consisting of 150,000 shares of our unregistered common stock and
warrants exercisable through November 30, 2021 to purchase 150,000
unregistered shares of our common stock at an exercise price of
$2.00 per share. The purchaser of the units has no registration
rights with respect to the shares of common stock, warrants or the
shares of common stock issuable upon exercise of the warrants
comprising the units sold. The warrants are not exercisable until
six months and one day following the date of issuance. We received
cash proceeds of $150,000 from this sale of our securities, and the
entire amount of the proceeds was credited to stockholders’
equity.
Common Stock and Warrants Issued in Summer 2018 Private
Placement
Between
June 2018 and October 2018, we completed a self-placed private
placement with accredited investors, pursuant to which we sold
units, at a purchase price of $1.25 per unit, consisting of
4,605,000 unregistered shares of our common stock and warrants,
exercisable through February 28, 2022, to purchase 4,605,000
unregistered shares of our common stock at an exercise price of
$1.50 per share (the
Summer 2018
Private Placement
). The purchasers of the units have no
registration rights with respect to the shares of common stock,
warrants or the shares of common stock issuable upon exercise of
the warrants comprising the units sold. The warrants are not
exercisable until at least six months and one day following the
date of issuance. We received aggregate cash proceeds of $5,756,200
in connection with the Summer 2018 Private Placement and the entire
amount of the proceeds was credited to stockholders’
equity.
Common Stock and Warrants Issued in Fall 2018 Private
Placement
The
Summer 2018 Private Placement was oversubscribed. To accommodate
additional investor interest, during October 2018, we accepted
subscription agreements from accredited investors, pursuant to
which we sold to such investors units, at a unit purchase price
equal to $0.15 above the closing quoted market price of our common
stock on the Nasdaq Capital Market on the effective date of the
investor’s subscription agreement, consisting of an aggregate
of 420,939 unregistered shares of our common stock and four-year,
immediately exercisable warrants to purchase 420,939 unregistered
shares of our common stock at a per share exercise price equal to
the closing quoted market price of our common stock on the Nasdaq
Capital Market on the effective date of the investor’s
subscription agreement (the
Fall
2018 Private Placement
). The purchasers of the units have no
registration rights with respect to the shares of common stock,
warrants or the shares of common stock issuable upon exercise of
the warrants comprising the units sold. We received aggregate cash
proceeds of $812,500 in connection with the Fall 2018 Private
Placement and settled an outstanding professional service payable
by accepting a subscription agreement in the amount of $40,000 and
issuing the corresponding number of shares of common stock and
warrants. The entire amount of the proceeds of the Fall 2018
Private Placement was credited to stockholders’ equity. The
fair value of the common stock and warrant issued in the Fall 2018
Private Placement in settlement of the professional services
payable was determined to be $62,700 on the effective date of the
agreement. Accordingly, we recognized a loss on extinguishment of
accounts payable in the amount of $22,700 in our Consolidated
Statement of Operations and Comprehensive Loss for the fiscal year
ended March 31, 2019.
Modification of Warrants issued in Summer 2018 Private
Placement
Subsequent
to the completion of the Summer 2018 Private Placement, we amended
warrants to purchase an aggregate of 304,000 shares of our common
stock issued to investors who submitted Summer 2018 Private
Placement subscription agreements between October 3, 2018 and
October 5, 2018 to increase the exercise price of their warrants
from $1.50 per share to $1.59 per share or $1.69 per share,
depending on the effective date of the related subscription
agreement, to comply with certain provisions of The Nasdaq Stock
Market Rules applicable to the private placement. As additional
consideration for agreeing to the increase in the warrant exercise
price, we granted the investors additional warrants to purchase an
aggregate of 23,800 unregistered shares of our common stock at an
exercise price of $1.75 per share through February 28, 2022.
We calculated the fair value of the
modified warrants immediately before and after the modification
using the Black Scholes Option Pricing Model and determined that
the increase in the exercise price resulted in a decrease in the
fair value of the warrants, which decrease is not recognized. We
calculated the fair value of the new warrants using the
Black-Scholes Option Pricing Model and the weighted average
assumptions indicated in the table below, recognizing $25,800 as
the fair value of the new warrants and as warrant modification
expense, included as a component of general and administrative
expenses, in our Consolidated Statement of Operations and
Comprehensive Loss for the fiscal year ended March 31,
2019.
|
Assumption:
|
New Warrants
|
|
Market
price per share
|
$
1.80
|
|
Exercise
price per share
|
$
1.75
|
|
Risk-free
interest rate
|
2.83
%
|
|
Remaining
contractual term in years
|
3.25
|
|
Volatility
|
88.80
%
|
|
Dividend
rate
|
0.0
%
|
|
|
|
|
Number
of warrant shares
|
23,800
|
|
Weighted average fair value per share
|
$
1.08
|
Issuance of Common Stock for Product Licenses and
Option
As
indicated in Note 1,
Description
of Business
, and Note 3,
Summary of Significant Accounting
Policies
, in September 2018 we issued an aggregate of
1,630,435 shares of our unregistered common stock having a fair
market value of $2,250,000, based on the $1.38 per share quoted
closing market price of our common stock on the Nasdaq Capital
Market, to Pherin to acquire an exclusive worldwide license to
develop and commercialize PH94B and an option to acquire a similar
license for PH10. In October 2018, we exercised our option to
acquire an exclusive worldwide license to develop and commercialize
PH10 by issuing 925,926 shares of our unregistered common stock
having a fair market value of $2,000,000, based on the $2.16 per
share closing quoted market price of our common stock on the Nasdaq
Capital Market, to Pherin under the terms of the PH10 license
agreement. Under the terms of the PH94B and PH10 license
agreements, we are obligated to make additional cash payments and
pay royalties to Pherin in the event that certain regulatory and
performance-based milestones and commercial sales are achieved.
Additionally, in connection with the
license agreements, we are obligated to pay to Pherin monthly
support payments of $10,000 for a term of the earlier of 18 months
or the termination of the license agreement, however no monthly
support payment is required under the 18-month period identified in
the PH10 license agreement if support payments are being made under
the terms of the PH94B license agreement.
Issuance of Common Stock and Warrants to Professional Services
Providers and in Settlement of Accounts Payable
During
our fiscal years ended March 31, 2018 and 2019, we issued the
following securities in private placement transactions as
compensation for various professional services. Unless otherwise
noted, we recorded the related noncash expense as a component of
general and administrative expense in the Consolidated Statement of
Operations and Comprehensive Loss for the fiscal years ended March
31, 2018 and 2019, as appropriate.
●
During the quarter
ended September 30, 2017, we issued an aggregate of 927,500
unregistered shares of our common stock, of which 477,500 shares
were issued from our 2016 Plan, for various professional services,
including contract research, legal, investor relations and
financial advisory services. The common stock issued had an
aggregate fair value of $1,503,600 on the dates issued, of which
all but $117,300 has been recognized as noncash expense through
March 31, 2018. The un-expensed portion at March 31, 2018, which is
included in prepaid expenses in our accompanying Consolidated
Balance Sheet, is being recognized in expense ratably through July
2019 in accordance with the terms of work orders for certain
contract research services to be provided through that
period.
●
During the quarter
ended December 31, 2017, we issued an aggregate of 70,000
unregistered shares of our common stock, all of which were issued
from our Amended and Restated 2016 Stock Incentive Plan for
additional investor relations and financial advisory services. The
common stock issued had an aggregate fair value of $140,800 on the
dates issued.
●
During the quarter
ended December 31, 2017, we also issued 500,000 unregistered shares
of our common stock having a fair value at the time of issuance of
$585,000 and a cash payment of $76,500 to our contract
manufacturing organization (
CMO
) in exchange for and settlement of
$526,500 of open accounts payable for services provided by the CMO
relating to production of AV-101 drug substance. We recognized a
corresponding loss on settlement of accounts payable in the amount
of $135,000 in the Consolidated Statement of Operations and
Comprehensive Loss for the fiscal year ended March 31,
2018.
●
During the quarter
ended March 31, 2018, we issued 30,000 unregistered shares of our
common stock to a provider of investor relations and financial
advisory services. The common stock issued had an aggregate fair
value of $39,000 on the date issued.
●
During the quarter ended June 30, 2018,
we
issued an aggregate of 100,000 unregistered shares of our common
stock having a fair value on the dates of issuance of $123,000 as
full or partial compensation to an investor relations service
provider and under a financial advisory agreement.
●
During the quarter
ended September 30, 2018, we issued 50,000 shares of our
unregistered common stock having a fair value on the date of
issuance of $68,000 as partial compensation to a corporate
awareness service provider.
●
During the quarter
ended September 30, 2018, we also issued four-year warrants to
three service providers to purchase an aggregate of 288,000
unregistered shares of our common stock at an exercise price of
$1.50 per share as full or partial compensation for investor
relations and corporate awareness services. We valued the warrants
at an aggregate fair value of $266,900 using the Black-Scholes
Option Pricing Model and the following grant date weighted average
assumptions: exercise price per share: $1.50; market price per
share: $1.40; risk-free interest rate: 2.71%; contractual term: 4
years; volatility: 94.17%; dividend rate: 0%; deriving a value per
warrant share of $0.93. The fair value of the common stock and
warrants is being recognized in expense ratably over the term of
the underlying contracts.
●
During the quarter
ended March 31, 2019, we issued 25,000 registered shares of our
common stock having a fair value of $41,500 on the date of issuance
from our Amended and Restated 2016 Stock Incentive Plan to an
investor relations and social media service provider. The fair
value of the common stock is being recognized in expense ratably
over the term of the underlying contract.
Stock Option Exercises
During
the quarter ended March 31, 2019, our Chief Executive Officer and
Chief Scientific Officer and a member of our Board exercised
outstanding stock options to purchase an aggregate of 29,250 shares
of our common stock and we received cash proceeds of
$43,900.
Warrant Modifications
In
addition to the Summer 2018 Private Placement warrants modified
during our fiscal year ended March 31, 2019, w
e modified other outstanding warrants during our
fiscal year ended March 31, 2018.
During the quarter ended September 30, 2017, the Board authorized
the modification of outstanding warrants issued in private
placement transactions between March 2017 and June 2017 to reduce
the exercise prices and increase the number of shares issuable
thereunder. We calculated the fair value of the warrant immediately
before and after the modification using the Black-Scholes Option
Pricing Model and the weighted average assumptions indicated in the
table below. We recognized the incremental fair value, $279,700, as
warrant modification expense, included as a component of general
and administrative expenses, in our Consolidated Statement of
Operations and Comprehensive Loss for the fiscal year ended March
31, 2018.
|
Assumption:
|
Pre-modification
|
Post-modification
|
|
Market
price per share
|
$
1.54
|
$
1.54
|
|
Exercise
price per share
|
$
3.99
|
$
2.00
|
|
Risk-free
interest rate
|
1.62
%
|
1.62
%
|
|
Remaining
contractual term in years
|
3.62
|
3.62
|
|
Volatility
|
95.5
%
|
95.5
%
|
|
Dividend
rate
|
0.0
%
|
0.0
%
|
|
|
|
|
|
Number
of warrant shares
|
247,500
|
495,001
|
|
Weighted average fair value per share
|
$
0.71
|
$
0.92
|
During the quarter ended December 31, 2017, the Board authorized
the modification of outstanding warrants issued in private
placement transactions between August 2017 and November 2017 to
reduce the exercise prices of the warrants. We calculated the fair
value of the warrants immediately before and after the modification
using the Black Scholes Option Pricing Model and the weighted
average assumptions indicated in the table below. We recognized the
incremental fair value, $13,000, as warrant modification expense,
included as a component of general and administrative expenses, in
our Consolidated Statement of Operations and Comprehensive
Loss for the fiscal year ended March 31, 2018.
|
Assumption:
|
Pre-modification
|
Post-modification
|
|
Market
price per share
|
$
1.14
|
$
1.14
|
|
Exercise
price per share
|
$
2.32
|
$
1.58
|
|
Risk-free
interest rate
|
2.12
%
|
2.12
%
|
|
Remaining
contractual term in years
|
3.85
|
3.85
|
|
Volatility
|
98.7
%
|
98.7
%
|
|
Dividend
rate
|
0.0
%
|
0.0
%
|
|
|
|
|
|
Number
of warrant shares
|
178,572
|
178,572
|
|
Weighted average fair value per share
|
$
0.64
|
$
0.71
|
Warrants Outstanding
The following table summarizes outstanding and exercisable warrants
to purchase shares of our common stock as of March 31,
2019. The weighted average exercise price of outstanding
and exercisable warrants at March 31, 2019 was $2.53 per share and
$2.57 per share, respectively.
|
Exercise Price
|
Expiration
|
Warrants Outstanding at
|
Warrants Exercisable at
|
|
per Share
|
Date
|
March 31, 2019
|
March 31, 2019
|
|
|
|
|
|
|
$
1.50
|
11/30/2021
to 12/13/2022
|
14,335,200
|
13,857,200
|
|
$
1.59
|
2/28/2022
|
292,000
|
-
|
|
$
1.69
|
2/28/2022
|
12,000
|
-
|
|
$
1.70
|
10/5/2022
|
182,434
|
182,434
|
|
$
1.75
|
2/28/2022
|
23,800
|
-
|
|
$
1.80
|
10/10/2022
|
115,385
|
115,385
|
|
$
1.82
|
3/7/2023
|
1,388,931
|
1,388,931
|
|
$
2.00
|
4/30/2021
|
523,573
|
523,573
|
|
$
2.20
|
10/19/2022
|
106,383
|
106,383
|
|
$
2.24
|
10/16/2022
|
16,737
|
16,737
|
|
$
3.51
|
12/31/2021
|
50,000
|
50,000
|
|
$
4.50
|
9/26/2019
|
25,000
|
25,000
|
|
$
5.30
|
5/16/2021
|
2,705,883
|
2,705,883
|
|
$
6.00
|
9/26/2019
to 11/30/2019
|
97,750
|
97,750
|
|
$
7.00
|
1/11/2020
to 3/3/2023
|
1,262,878
|
1,262,878
|
|
$
8.00
|
3/25/2021
|
185,000
|
185,000
|
|
$
10.00
|
1/11/2020
|
20,000
|
20,000
|
|
$
20.00
|
9/15/2019
|
110,448
|
110,448
|
|
|
21,453,402
|
20,647,602
|
|
Reserved Shares
At March 31, 2019, we have reserved shares of our common stock for
future issuance as follows:
|
Upon exchange of all shares of Series A Preferred
currently issued and outstanding
(1)
|
750,000
|
|
Upon exchange of all shares of Series B Preferred
currently issued and outstanding
(2)
|
5,096,738
|
|
Upon exchange of all shares of Series C Preferred
currently issued and outstanding
(3)
|
2,318,012
|
|
Pursuant
to warrants to purchase common stock:
|
|
|
Subject
to outstanding warrants
|
21,453,402
|
|
Pursuant
to stock incentive plan:
|
|
|
Subject
to outstanding options under the Amended and Restated 2016 Stock
Incentive
Plan
|
6,626,088
|
|
Available
for future grants under the Amended and Restated 2016 Stock
Incentive Plan
|
2,607,162
|
|
|
9,233,250
|
|
Total
|
38,851,402
|
|
____________
|
|
|
(1)
Assumes exchange under the terms of
the October 11, 2012 Note Exchange and Purchase
Agreement
|
|
|
(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; includes 3,936,498 shares of 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
|
|
At March 31, 2019, we have 18,525,633 authorized shares of our
common stock not subject to reserves and available for future
issuance.
10. Research and Development Expenses
We recorded research and development expenses of approximately
$17.1 million (including approximately $5.6 million of non-cash
expense) and $7.8 million in the fiscal years ended March 31,
2019 and 2018, respectively. Research and development expense is
composed of employee compensation expenses, including
stock–based compensation, direct project expenses, notably
including costs attributable to our AV-101 ELEVATE clinical trial
and other preclinical and nonclinical projects, and costs to
maintain and prosecute our intellectual property suite, including
new patent applications for AV-101 for various indications. As
indicated in Note 9,
Capital
Stock
, research and development
expense for the fiscal year ended March 31, 2019 also includes
non-cash expense of $4.25 million attributable to the acquisition
of the PH94B and PH10 licenses and the PH10
option.
11. Income Taxes
The provision for income taxes for the periods presented in the
Consolidated Statements of Operations and Comprehensive Loss
represents minimum California franchise tax and North Carolina
income tax.
On December 22, 2017, the Tax Cuts and Jobs Act (the
Tax Act
) was enacted into law,
significantly changing
the
fundamentals of U.S. corporate income taxation by, among many other
things, reducing the U.S. federal corporate income tax rate to 21%,
converting to a territorial tax system, and creating various income
inclusion and expense limitation provisions.
The reduction
of the U.S. federal statutory tax rate from 34% to 21% became
effective January 1, 2018. Income tax expense for the fiscal year
ended March 31, 2018 was computed by applying the U.S. federal
income tax rate of 34% for April 1, 2017 to December 31, 2017 and
21% for January 1, 2018 to March 31, 2018 (prorated basis 30.75%)
to pretax losses.
Income tax expense
differed from the amounts computed by applying the U.S. federal
income tax rate of 21% and the prorated rate of 30.75% for the
fiscal years ended March 31, 2019 and 2018, respectively, to pretax
losses as a result of the
following:
|
|
Fiscal Years Ended March 31,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Computed
expected tax benefit
|
(21.00
)%
|
(30.75
)%
|
|
Tax
effect of warrant modifications and other non-deductible
items
|
0.74
%
|
0.40
%
|
|
Tax
effect of research and development credits
|
(1.92
)%
|
(1.44
)%
|
|
Effect
of U.S. tax law change (federal and state)
|
-
%
|
88.09
%
|
|
Other
losses not benefitted
|
22.19
%
|
(56.28
)%
|
|
Other
|
-
%
|
-
%
|
|
Income
tax expense
|
0.01
%
|
0.02
%
|
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes. Significant components of our deferred tax assets are
as follows:
|
|
March 31,
|
|
|
|
2019
|
2018
|
|
Deferred
tax assets:
|
|
|
|
Net
operating loss carryovers
|
$
27,190,900
|
$
21,402,600
|
|
Basis
differences in fixed assets
|
(2,700
)
|
(7,600
)
|
|
Stock
based compensation
|
3,516,600
|
2,504,500
|
|
Accruals
and reserves
|
2,047,500
|
1,352,900
|
|
Total
deferred tax assets
|
32,752,300
|
25,252,400
|
|
Valuation
allowance
|
(32,752,300
)
|
(25,252,400
)
|
|
Net
deferred tax assets
|
$
-
|
$
-
|
Realization of deferred tax assets is dependent upon future
earnings, if any, the timing and amount of which are uncertain.
Accordingly, the deferred tax assets have been fully offset by a
valuation allowance. The valuation allowance increased by
$7,499,900 and decreased by $9,529,300 during the
fiscal years ended March 31, 2019 and 2018,
respectively.
At March 31, 2019 we had U.S. federal net operating loss
carryforwards of approximately $109,032,500, which will expire in
fiscal years 2020 through 2038. At March 31, 2019, we
had state net operating loss carryforwards of approximately
$63,574,300, which will expire in fiscal years 2029 through
2039. Federal net operating losses incurred in our fiscal year
ended March 31, 2019 and thereafter will not expire. We also have
federal and state research and development tax credit carryforwards
of approximately $1,624,700 and $1,049,500, respectively. The
federal tax credits will expire at various dates beginning in the
year 2029, unless previously utilized. The state tax credits do not
expire and will carry forward indefinitely until
utilized.
On December 22, 2017, the SEC staff issued Staff Accounting
Bulletin No. 118 (
SAB 118
) to provide guidance for companies that are not
able to complete their accounting for the income tax effects of the
Tax Act in the period of enactment. SAB 118 provides for a
measurement period of up to one year from the date of enactment.
During the measurement period, companies need to reflect
adjustments to any provisional amounts if it obtains, prepares or
analyzes additional information about facts and circumstances that
existed as of the enactment date that, if known, would have
affected the income tax effects initially reported as provisional
amounts.
At March 31, 2019 we have completed our analysis of the Tax Act.
The Act required us to re-measure our net U.S. deferred tax assets
reducing the U.S. federal corporate rate to 21%, which was offset
by our valuation allowance. During our fiscal year ended March 31,
2019, this amount was finalized and no additional adjustment was
required to be made due to the change in corporate tax
rate.
Also effective for our fiscal year ended March 31, 2019 is a new
Global Intangible Low-Taxed Income inclusion (
GILTI
). The GILTI income inclusion did
not impact our current loss and valuation allowance as our Canadian
subsidiary is an inactive entity. The Company has elected to
account for GILTI as a period cost in the year the income or tax is
incurred.
U.S. federal and state tax laws include substantial
restrictions on the utilization of net operating loss carryforwards
in the event of an ownership change of a corporation. We have not
performed a change in ownership analysis since our inception in
1998 and accordingly some or all of our net operating loss
carryforwards may not be available to offset future taxable income,
if any.
We file income tax returns in the U.S. federal, Canada and
various U.S. state jurisdictions. We are subject to
U.S. federal and state income tax examinations by tax
authorities for tax years 1998 through 2018 due to net operating
losses that are being carried forward for tax purposes, but we are
not currently under examination by tax authorities in any
jurisdiction.
Uncertain Tax Positions
Our unrecognized tax benefits at March 31, 2019 and 2018 relate
entirely to research and development tax credits. The total amount
of unrecognized tax benefits at March 31, 2019 and 2018 is $668,700
and $451,600, respectively. If recognized, none of the unrecognized
tax benefits would impact our effective tax rate. The following
table summarizes the activity related to our unrecognized tax
benefits.
|
|
Fiscal Years Ended March 31,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Unrecognized
benefit - beginning of period
|
$
451,600
|
$
290,500
|
|
Current
period tax position increases
|
210,100
|
102,300
|
|
Prior
period tax position increases
|
7,000
|
58,800
|
|
Unrecognized
benefit - end of period
|
$
668,700
|
$
451,600
|
Our policy is to recognize interest and penalties related to income
taxes as components of interest expense and other expense,
respectively. We incurred no interest or penalties related to
unrecognized tax benefits in the years ended March 31, 2019 or
2018. We do not anticipate any significant changes of our uncertain
tax positions within twelve months of this reporting
date.
12. Licensing, Sublicensing and Collaborative
Agreements
License Agreements with Pherin Pharmaceuticals, Inc.
(Pherin)
In
September 2018 we issued an aggregate of 1,630,435 shares of our
unregistered common stock having a fair market value of $2,250,000
to Pherin to acquire an exclusive worldwide license to develop and
commercialize PH94B for social anxiety disorder and an option to
acquire a similar license for PH10 for MDD. In October 2018, we
exercised our option to acquire an exclusive worldwide license to
develop and commercialize PH10 by issuing 925,926 shares of our
unregistered common stock having a fair market value of $2,000,000
to Pherin under the terms of the PH10 license agreement. Under the
terms of the PH94B and PH10 license agreements, we are obligated to
make additional cash payments and pay royalties to Pherin in the
event that certain regulatory and performance-based milestones and
commercial sales are achieved.
Additionally, in connection with the license
agreements, we are obligated to pay to Pherin monthly support
payments of $10,000 for a term of the earlier of 18 months or the
termination of the license agreement, however no monthly support
payment is required under the 18-month period identified in the
PH10 license agreement if support payments are being made under the
terms of the PH94B license agreement.
BlueRock Therapeutics Sublicense Agreement
In December 2016, we entered into an Exclusive License and
Sublicense Agreement (
BlueRock
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. 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 BlueRock Agreement.
Cato Research Ltd.
We have built a long-term strategic development relationship with
Cato Research Ltd. (
CRL
), a global contract research and development
organization, or CRO, and an affiliate of one of our largest
institutional stockholders. CRL has provided us with access to
essential CRO services and regulatory expertise supporting our
AV-101 preclinical and clinical development programs, including our
ELEVATE Study, and other projects, including projects related to
PH94B and PH10. We recorded research and development
expenses for CRO services provided by CRL in the amounts of
$3,969,100 and $1,390,700 for the fiscal years ended March 31, 2019
and 2018, respectively.
13. Stock Option Plans and 401(k) Plan
At March 31, 2019, we have the following share-based compensation
plan.
Amended and Restated 2016 Stock Incentive Plan
Our
Board unanimously approved the Company’s Amended and Restated
2016 Stock Incentive Plan, formerly titled the 2008 Stock Incentive
Plan (the
2016 Plan
), on
July 26, 2016, and the 2016 Plan was approved by our stockholders
at our 2016 Annual Meeting of Stockholders on September 26, 2016,
and further amended at our 2017 Annual Meeting of Stockholders on
September 15, 2017. The 2016 Plan provides for the grant of stock
options, restricted shares of common stock, stock appreciation
rights and dividend equivalent rights, collectively referred to as
“Awards”. Stock options granted under the 2016 Plan may
be either incentive stock options under the provisions of Section
422 of the Internal Revenue Code of 1986, as amended (the
Code
), or non-qualified
stock options. We may grant incentive stock options only to
employees of the Company or any parent or subsidiary of the
Company. Awards other than incentive stock options may be granted
to employees, directors and consultants. A total of 10.0 million
shares of our common stock were initially authorized for issuance
under the 2016 Plan, of which approximately 9.2 million shares
remain authorized and approximately 2.6 million registered shares
remain available for future equity grants under the plan at March
31, 2019.
Description of the 2016 Plan
The
2016 Plan provides for the grant of stock options, restricted
shares of common stock, stock appreciation rights and dividend
equivalent rights, collectively referred to as
“Awards”. Stock options granted under the 2016 Plan may
be either incentive stock options under the provisions of
Section 422 of the Code, or non-qualified stock options. We
may grant incentive stock options only to employees of the Company
or any parent or subsidiary of the Company. Awards other than
incentive stock options may be granted to employees, directors and
consultants.
The
Compensation Committee of the Board of Directors (the
Committee
), administers the 2016 Plan,
including selecting the Award recipients, determining the number of
shares to be subject to each Award, the exercise or purchase price
of each Award and the vesting and exercise periods of each
Award.
The
exercise price of all incentive stock options granted under the
2016 Plan must be at least equal to 100% of the fair market value
of the shares on the date of grant. The maximum term of an
incentive stock option granted to any other participant may not
exceed 10 years. The Committee determines the term and exercise or
purchase price of all other Awards granted under the 2016
Plan.
Under
the 2016 Plan, incentive stock options may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of descent or distribution and
may be exercised, during the lifetime of the participant, only by
the participant. Other Awards shall be transferable:
●
by will
and by the laws of descent and distribution; and
●
during
the lifetime of the participant, to the extent and in the manner
authorized by the Committee by gift or pursuant to a domestic
relations order to members of the participant’s Immediate
Family (as defined in the 2016 Plan).
The
maximum number of shares with respect to which options and stock
appreciation rights may be granted to any participant in any
calendar year is 300,000 shares of common stock. In connection with
a participant’s commencement of service with the Company, a
participant may be granted options and/or stock appreciation rights
for up to an additional 50,000 shares that will not count
against the foregoing limitation. In addition, for Awards of
restricted stock and restricted shares of common stock that are
intended to be “performance-based compensation” (within
the meaning of Section 162(m) of the Code), the maximum number
of shares with respect to which such Awards may be granted to any
participant in any calendar year is 300,000 shares of common stock.
The limits described in this paragraph are subject to adjustment in
the event of any change in our capital structure as described
below.
The
terms and conditions of Awards are determined by the Committee,
including the vesting schedule and any forfeiture provisions.
Awards under the 2016 Plan may vest upon the passage of time or
upon the attainment of certain performance criteria. Although we do
not currently have any Awards outstanding that vest upon the
attainment of performance criteria, the Committee may establish
criteria based on any one of, or a combination of, a number of
financial measurements.
Effective
upon the consummation of a Corporate Transaction (as defined
below), all outstanding Awards under the 2016 Plan will terminate
unless the acquirer assumes or replaces such Awards. The Committee
has the authority, exercisable either in advance of any actual or
anticipated Corporate Transaction or Change in Control (as defined
below) or at the time of an actual Corporate Transaction or Change
in Control and exercisable at the time of the grant of an Award
under the 2016 Plan or any time while an Award remains outstanding,
to provide for the full or partial automatic vesting and
exercisability of one or more outstanding unvested Awards under the
2016 Plan and the release from restrictions on transfer and
repurchase or forfeiture rights of such Awards in connection with a
Corporate Transaction or Change in Control, on such terms and
conditions as the Committee may specify. The Committee also has the
authority to condition any such Award vesting and exercisability or
release from such limitations upon the subsequent termination of
the service of the grantee within a specified period following the
effective date of the Corporate Transaction or Change in Control.
The Committee may provide that any Awards so vested or released
from such limitations in connection with a Change in Control, shall
remain fully exercisable until the expiration or earlier
termination of the Award.
Under
the 2016 Plan, a Corporate Transaction is generally defined
as:
●
an
acquisition of securities possessing more than fifty percent (50%)
of the total combined voting power of our outstanding securities
but excluding any such transaction or series of related
transactions that the Committee determines shall not be a Corporate
Transaction;
●
a
reverse merger in which we remain the surviving entity but: (i) the
shares of common stock outstanding immediately prior to such merger
are converted or exchanged by virtue of the merger into other
property, whether in the form of securities, cash or otherwise; or
(ii) in which securities possessing more than fifty percent (50%)
of the total combined voting power of our outstanding securities
are transferred to a person or persons different from those who
held such securities immediately prior to such merger;
●
a sale,
transfer or other disposition of all or substantially all of the
assets of the Company;
●
a
merger or consolidation in which the Company is not the surviving
entity; or
●
a
complete liquidation or dissolution.
Under
the 2016 Plan, a Change in Control is generally defined as:
(i) the acquisition of more than 50% of the total combined
voting power of our stock by any individual or entity which a
majority of our Board (who have served on our board for at least
12 months) do not recommend our stockholders accept;
(ii) or a change in the composition of our Board over a period
of 12 months or less.
Unless
terminated sooner, the 2016 Plan will automatically terminate in
2026. Our Board may at any time amend, suspend or terminate the
2016 Plan. To the extent necessary to comply with applicable
provisions of U.S. federal securities laws, state corporate and
securities laws, the Code, the rules of any applicable stock
exchange or national market system, and the rules of any non-U.S.
jurisdiction applicable to Awards granted to residents therein, we
will obtain stockholder approval of any such amendment to the 2016
Plan in such a manner and to such a degree as
required.
During our fiscal year ended March 31, 2019, we granted from the
2016 Plan:
●
options
to purchase an aggregate of 860,000 shares of our common stock at
an exercise price of $1.27 per share to the independent members of
our Board, to all of our officers except our Chief Executive
Officer, and to all non-officer employees in August
2018;
●
options
to purchase an aggregate of 250,000 shares of our common stock at
exercise prices ranging from $1.52 per share to $2.20 per share to
various scientific, legal, investor relations, and financial and
strategic advisory consultants in October 2018;
●
an
option to purchase 25,000 shares of our common stock at an exercise
price of $1.74 per share to a new independent member of our Board
in January 2019;
●
an
option to purchase 220,000 shares of our common stock at an
exercise price of $1.70 per share to our Chief Executive Officer in
January 2019; and
●
25,000
shares of registered common stock having a fair value of $41,500 on
the date of grant to an investor relations and social media
consultant. Noncash expense related to this grant is being
amortized ratably over the contractual period as a component of
general and administrative expense not included in stock
compensation expense.
During our fiscal year ended March 31, 2018, we granted from the
2016 Plan:
●
options
to purchase an aggregate of 880,000 shares of our common stock at
an exercise price of $1.96 per share to the independent members of
our Board and to our officers and all non-officer employees in
April 2017;
●
options
to purchase an aggregate of 770,000 shares of our common stock at
an exercise price of $1.56 per share to the independent members of
our Board, officers, non-officer employees and two consultants in
September 2017;
●
options
to purchase an aggregate of 2,000,000 shares of our common stock at
an exercise price of $1.16 per share to the independent members of
our Board, officers, non-officer employees and ten consultants in
February 2018;
●
options
to purchase 25,000 shares of our common stock at an exercise price
of $1.21 per share to a legal services consultant in February 2018;
and
●
an
aggregate of 547,500 shares of unregistered common stock to various
legal, investor relations, and financial and strategic advisory
consultants in September and October 2017 pursuant to which we
recognized an aggregate of $827,900 as a noncash component of
general and administrative expense not included in stock
compensation expense for the fiscal year.
The following table summarizes stock-based compensation expense
related to option grants to our officers, independent directors,
consultants and service providers, included in the accompanying
Consolidated Statement of Operations and Comprehensive Loss for the
years ended March 31, 2019 and 2018.
|
|
Fiscal Years Ended March 31,
|
|
|
|
2019
|
2018
|
|
Research
and development expense:
|
|
|
|
Stock
option grants
|
$
1,259,400
|
$
969,200
|
|
General
and administrative expense:
|
1,259,400
|
969,200
|
|
Stock
option grants
|
2,184,000
|
1,375,000
|
|
|
2,184,000
|
1,375,000
|
|
Total
stock-based compensation expense
|
$
3,443,400
|
$
2,344,200
|
We used the Black-Scholes Option Pricing model with the following
weighted average assumptions to determine share-based compensation
expense related to option grants during the fiscal years ended
March 31, 2019 and 2018:
|
|
Fiscal Years Ended March 31,
|
|
|
|
2019
|
2018
|
|
|
(weighted
average)
|
(weighted
average)
|
|
Exercise
price
|
$
1.45
|
$
1.44
|
|
Market
price on date of grant
|
$
1.45
|
$
1.44
|
|
Risk-free
interest rate
|
2.84
%
|
2.39
%
|
|
Expected
term (years)
|
6.32
|
6.87
|
|
Volatility
|
96.58
%
|
90.40
%
|
|
Expected
dividend yield
|
0.00
%
|
0.00
%
|
|
|
|
|
|
Fair
value per share at grant date
|
$
1.15
|
$
1.10
|
The expected term of options represents the period that our
share-based compensation awards are expected to be outstanding. We
have calculated the weighted-average expected term of the options
using the simplified method as prescribed by Securities and
Exchange Commission Staff Accounting Bulletins No. 107 and
No. 110 (
SAB No. 107 and
110
). The utilization of SAB
No. 107 and 110 is based on the lack of relevant historical option
exercises and relevant historical data due to our limited
experience as a publicly traded company and the historical lack of
liquidity in freely-tradable shares of our common stock. Those
factors also resulted in our decision to utilize the historical
volatilities of a peer group of public companies’ stock over
the expected term of the option in determining our expected
volatility assumptions. The risk-free interest rate for
periods related to the expected life of the options is based on the
U.S. Treasury yield curve in effect at the time of grant. The
expected dividend yield is zero, as we have not paid any dividends
and do not anticipate paying dividends in the near future. We
recognize the effect of forfeitures as they
occur.
The following table summarizes activity for the fiscal years ended
March 31, 2019 and 2018 under the 2016 Plan:
|
|
Fiscal Years Ended March 31,
|
|||
|
|
2019
|
2018
|
||
|
|
Number of
Shares
|
Weighted
Average
Exercise
Price
|
Number of
Shares
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
Options
outstanding at beginning of period
|
5,300,338
|
$
2.43
|
1,659,324
|
$
4.76
|
|
Options
granted
|
1,355,000
|
$
1.45
|
3,675,000
|
$
1.44
|
|
Options
exercised
|
(29,250
)
|
$
1.50
|
-
|
$
-
|
|
Options
forfeited
|
-
|
$
-
|
(12,154
)
|
$
5.39
|
|
Options
expired
|
-
|
$
-
|
(21,832
)
|
$
9.42
|
|
Options
outstanding at end of period
|
6,626,088
|
$
1.48
|
5,300,338
|
$
2.43
|
|
Options
exercisable at end of period
|
4,303,972
|
$
1.53
|
1,818,962
|
$
3.31
|
|
Weighted
average grant-date fair value of
|
|
|
|
|
|
options
granted during the period
|
|
$
1.15
|
|
$
1.10
|
In August 2018, in accordance with the terms of the 2016 Plan, the
Board approved the modification of outstanding options held by
independent members of our Board, our officers and our employees
that had exercise prices higher than $1.56 per share to reduce the
exercise prices thereof to $1.50 per share. We calculated the fair
value of such options immediately before and after the modification
using the Black-Scholes Option Pricing Model and the weighted
average assumptions indicated in the table below. We immediately
recognized the additional fair value attributable to vested
options, $258,100, as stock compensation expense, which is included
in the expense reported above. The additional fair value resulting
from the modification, approximately $142,200, is being expensed
over the remaining vesting period of the modified
options.
|
Assumption:
|
Pre-modification
|
Post-modification
|
|
Market
price per share
|
$
1.49
|
$
1.49
|
|
Exercise
price per share
|
$
3.57
|
$
1.50
|
|
Risk-free
interest rate
|
2.77
%
|
2.77
%
|
|
Remaining
expected term in years
|
5.08
|
5.08
|
|
Volatility
|
94.9
%
|
94.9
%
|
|
Dividend
rate
|
0.0
%
|
0.0
%
|
|
|
|
|
|
Number
of option shares
|
2,419,503
|
2,419,503
|
|
Weighted average fair value per share
|
$
0.91
|
$
1.08
|
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information on stock options
outstanding and exercisable under the 2016 Plan as of March 31,
2019, including the results of the exercise price modification
noted above:
|
|
Options Outstanding
|
Options Exercisable
|
|||
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
Weighted
|
|
Weighted
|
|
|
|
Remaining
|
Average
|
|
Average
|
|
Exercise
|
Number
|
Years until
|
Exercise
|
Number
|
Exercise
|
|
Price
|
Outstanding
|
Expiration
|
Price
|
Exercisable
|
Price
|
|
|
|
|
|
|
|
|
$
1.16
|
2,000,000
|
8.84
|
$
1.16
|
1,312,493
|
$
1.16
|
|
$
1.21 to $1.27
|
885,000
|
9.34
|
$
1.27
|
419,529
|
$
1.27
|
|
$
1.50
|
2,390,253
|
7.34
|
$
1.50
|
1,699,753
|
$
1.50
|
|
$
1.52 to $1.99
|
1,215,000
|
8.91
|
$
1.62
|
777,058
|
$
1.59
|
|
$
2.20 to $3.80
|
55,000
|
9.38
|
$
2.35
|
14,304
|
$
3.67
|
|
$
8.00 to $15.00
|
80,835
|
5.86
|
$
8.54
|
80,835
|
$
8.54
|
|
|
6,626,088
|
8.35
|
$
1.48
|
4,303,972
|
$
1.53
|
At March 31, 2019, there were 2,607,162 registered shares of our
common stock remaining available for grant under the 2016
Plan. T
wo officers and a member of our Board
exercised outstanding stock options to purchase an aggregate of
29,250 shares of our common stock during the fiscal year ended
March 31, 2019.
There were no option
exercises during the fiscal year ended March 31,
2018.
Aggregate intrinsic value is the sum of the amount by which the
fair value of the underlying common stock exceeds the aggregate
exercise price of the outstanding options (
in-the-money-options
).
Based on the $1.29 per share quoted closing market price of our
common stock on March 31, 2019, outstanding options to purchase an
aggregate of 2,885,000 shares had aggregate intrinsic value of
approximately $250,300 and exercisable options to purchase an
aggregate of 1,732,022 shares had aggregate intrinsic value of
approximately $162,700 at that date.
As of March 31, 2019, there was approximately $3,089,300 of
unrecognized compensation cost related to non-vested share-based
compensation awards from the 2016 Plan, which is expected to be
recognized through January 2021.
401(k) Plan
Through a third-party agent, we maintain a retirement and deferred
savings plan for our employees. This plan is intended to qualify as
a tax-qualified plan under Section 401(k) of the Internal
Revenue Code. The retirement and deferred savings plan provides
that each participant may contribute a portion of his or her
pre-tax compensation, subject to statutory limits. Under the plan,
each employee is fully vested in his or her deferred salary
contributions. Employee contributions are held and invested by the
plan’s trustee. The retirement and deferred savings plan also
permits us to make discretionary contributions, subject to
established limits and a vesting schedule. To date, we have not
made any discretionary contributions to the retirement and deferred
savings plan on behalf of participating employees.
14. Related Party Transactions
Cato Holding Company (
CHC
), doing business as Cato BioVentures
(
CBV
), is the parent of Cato Research Ltd.
(
CRL
). CRL is a contract research, development and
regulatory services organization (
CRO
) that we have engaged for a wide range of
material aspects related to the nonclinical and clinical
development and regulatory affairs associated with our efforts to
develop and commercialize AV-101 for MDD, including our ELEVATE
Study, and other potential CNS indications, PH94B, PH10, and other
potential product candidates. At March 31, 2019, CBV held
approximately 2% 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 and our prior May 2007 master services agreement,
we incurred expenses of $3,969,100 and $1,390,700 for the fiscal
years ended March 31, 2019 and 2018, respectively. We anticipate
periodic expenses for CRO services from CRL related to nonclinical
and clinical development of, and regulatory affairs related to,
AV-101, PH94B, PH10 and other potential product candidates will
increase in future periods.
As disclosed in Note 9,
Capital
Stock
, in September
2018,
we issued an aggregate of 1,630,435 shares of our
unregistered common stock having a fair market value of $2,250,000
to acquire an exclusive worldwide license to develop and
commercialize PH94B and an option to acquire a similar license for
PH10. In October 2018, we issued an additional 925,926 shares of
our unregistered common stock having a fair market value of
$2,000,000 to exercise the option to acquire an exclusive worldwide
license to develop and commercialize PH10. The acquisition of the
licenses and option was recorded as research and development
expense. Additionally, between the acquisition of the PH94B license
in September 2018 and March 31, 2019, we expensed $70,000 of
monthly cash support payments to Pherin under the terms of the
PH94B license agreement as research and development expense. At
March 31, 2019, Pherin held approximately 6% of our outstanding
Common Stock.
15. Commitments, Contingencies, Guarantees and
Indemnifications
From time to time, we may become involved in claims and other legal
matters arising in the ordinary course of business. Management is
not currently aware of any claims made or other legal matters that
will have a material adverse effect on our consolidated financial
position, results of operations or its cash flows.
We indemnify our officers and directors for certain events or
occurrences while the officer or director is or was serving at our
request in such capacity. The term of the indemnification period is
for the officer’s or director’s lifetime. We will
indemnify the officers or directors against any and all expenses
incurred by the officers or directors because of their status as
one of our directors or executive officers to the fullest extent
permitted by Nevada law. We have never incurred costs to defend
lawsuits or settle claims related to these indemnification
agreements. We have a director and officer insurance policy
which limits our exposure and may enable us to recover a portion of
any future amounts paid. We believe the fair value of these
indemnification agreements is minimal. Accordingly, there are no
liabilities recorded for these agreements at March 31, 2019 or
2018.
In the normal course of business, we provide indemnifications of
varying scopes under agreements with other companies, typically
clinical research organizations, investigators, clinical sites,
suppliers and others. Pursuant to these agreements, we
generally indemnify, hold harmless, and agree to reimburse the
indemnified parties for losses suffered or incurred by the
indemnified parties in connection with the use or testing of our
product candidates or with any U.S. patents or any copyright or
other intellectual property infringement claims by any third party
with respect to our product candidates. The terms of these
indemnification agreements are generally perpetual. The
potential future payments we could be required to make under
these indemnification agreements is unlimited. We maintain
liability insurance coverage that limits our exposure. We
believe the fair value of these indemnification agreements is
minimal. Accordingly, we have not recorded any liabilities
for these agreements as of March 31, 2019 or 2018.
Leases
At March 31, 2019 and or 2018, the following assets are subject to
capital lease obligations and included in property and
equipment:
|
|
March 31,
|
|
|
|
2019
|
2018
|
|
Office
equipment
|
$
14,700
|
$
14,700
|
|
Accumulated
depreciation
|
(6,500
)
|
(3,600
)
|
|
Net
book value
|
$
8,200
|
$
11,100
|
Amortization expense for assets recorded under capital leases is
included in depreciation expense. Future minimum payments, by
year and in the aggregate, required under capital leases are as
follows:
|
Fiscal Years Ending March
31,
|
Capital Leases
|
|
2020
|
$
3,800
|
|
2021
|
3,800
|
|
2022
|
3,300
|
|
Future
minimum lease payments
|
10,900
|
|
Less
imputed interest included in minimum lease payments
|
(1,600
)
|
|
Present
value of minimum lease payments
|
9,300
|
|
Less
current portion
|
(3,000
)
|
|
Non-current
capital lease obligation
|
$
6,300
|
At March 31, 2019, future minimum payments under operating leases
relate to our facility lease in South San Francisco, California
through July 31, 2022 and are as follows:
|
Fiscal Years Ending March
31,
|
Amount
|
|
2020
|
$
623,900
|
|
2021
|
645,800
|
|
2022
|
668,400
|
|
2023
|
225,300
|
|
|
$
2,163,400
|
We incurred total facility rent expense for the fiscal years ended
March 31, 2019 and 2018 of $657,900 and $645,800,
respectively.
Debt Repayment
At March 31, 2019, future minimum principal payments on outstanding
notes related to an insurance premium financing arrangement in the
remaining principal amount of $57,300, which will be repaid in
monthly principal and interest installments of $6,600 through
December 2019.
16. Subsequent Events
We have evaluated subsequent events through the date of this Annual
Report and have identified the following material events and
transactions that occurred after March 31,
2019:
Grants of Stock Options and Adoption of 2019 Stock Incentive
Plan
On May 23, 2019, when the quoted market price of our common stock
was $0.80 per share, the Compensation Committee of the Board
granted options from our 2016 Plan to our independent directors,
officers and employees and to certain consultants to purchase an
aggregate of 1,210,000 shares of our common stock at an exercise
price of $1.00 per share. The options were vested 25% upon grant
with the remaining shares vesting over three years for independent
directors, officers and employees, and over two years for
consultants. On May 30, 2019, when the quoted market price of our
common stock was $0.91 per share, we granted options to purchase
10,000 shares of our common stock to another consultant. The
options were vested 25% upon grant with the remaining shares
vesting over two years.
On May 27, 2019, the Board approved, subject to subsequent
stockholder approval at our 2019 Annual Meeting of Stockholders
expected to be held in September 2019, the 2019 Omnibus Equity
Incentive Plan (the
2019 Plan
) and designated 7.5 million shares of our
authorized common stock to be reserved thereunder. On May 28, 2019,
when the quoted market price of our common stock was $0.82 per
share, the Compensation Committee granted options from the 2019
Plan to one of our officers to purchase 170,000 shares of our
common stock at an exercise price of $1.00 per share, which grant
is contingent upon the approval of the 2019 Plan by our
stockholders. The option will vest 25% upon approval of the 2019
Plan with the remaining shares vesting over three
years.
17. Supplemental Financial Information (Unaudited)
The following table presents the unaudited statements of operations
data for each of the eight quarters in the period ended March 31,
2019. The information has been presented on the same basis as the
audited financial statements and all necessary adjustments,
consisting only of normal recurring adjustments, have been included
in the amounts below to present fairly the unaudited quarterly
results when read in conjunction with the audited financial
statements and related notes. The operating results for any quarter
should not be relied upon as necessarily indicative of results for
any future period.
Quarterly Results of Operations (Unaudited)
(in thousands, except share and per share
amounts)
|
|
Three Months Ended
|
Total
|
|||
|
|
June 30, 2018
|
September 30, 2018
|
December 31, 2018
|
March 31, 2019
|
Fiscal Year 2019
|
|
Operating
expenses:
|
|
|
|
|
|
|
Research
and development
|
$
2,744
|
$
5,261
|
$
5,335
|
$
3,758
|
$
17,098
|
|
General
and administrative
|
1,466
|
2,171
|
1,857
|
1,964
|
7,458
|
|
Total
operating expenses
|
4,210
|
7,432
|
7,192
|
5,722
|
24,556
|
|
Loss
from operations
|
(4,210
)
|
(7,432
)
|
(7,192
)
|
(5,722
)
|
(24,556
)
|
|
|
|
|
|
|
|
|
Other
expenses, net:
|
|
|
|
|
|
|
Interest
expense, net
|
(2
)
|
(3
)
|
(2
)
|
(1
)
|
(8
)
|
|
Loss
on extinguishment of accounts payable
|
-
|
-
|
(23
)
|
-
|
(23
)
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
(4,212
)
|
(7,435
)
|
(7,217
)
|
(5,723
)
|
(24,587
)
|
|
Income
taxes
|
(2
)
|
-
|
-
|
-
|
(2
)
|
|
Net
loss and comprehensive loss
|
(4,214
)
|
(7,435
)
|
(7,217
)
|
(5,723
)
|
(24,589
)
|
|
|
|
|
|
|
|
|
Accrued
dividend on Series B Preferred stock
|
(274
)
|
(284
)
|
(291
)
|
(291
)
|
(1,140
)
|
|
Net
loss attributable to common stockholders
|
$
(4,488
)
|
$
(7,719
)
|
$
(7,508
)
|
$
(6,014
)
|
$
(25,729
)
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
|
|
|
|
|
|
attributable
to common stockholders
|
$
(0.20
)
|
$
(0.30
)
|
$
(0.24
)
|
$
(0.17
)
|
$
(0.90
)
|
|
|
|
|
|
|
|
|
Weighted
average shares used in computing:
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
|
|
|
|
|
|
attributable
to common stockholders
|
22,987,066
|
25,815,245
|
30,696,312
|
35,113,753
|
28,562,490
|
|
|
Three Months Ended
|
Total
|
|||
|
|
June 30, 2017
|
September 30, 2017
|
December 31, 2017
|
March 31, 2018
|
Fiscal Year 2018
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
Research
and development
|
$
1,096
|
$
2,427
|
$
1,602
|
$
2,638
|
$
7,763
|
|
General
and administrative
|
1,164
|
2,567
|
1,266
|
1,440
|
6,437
|
|
Total
operating expenses
|
2,260
|
4,994
|
2,868
|
4,078
|
14,200
|
|
Loss
from operations
|
(2,260
)
|
(4,994
)
|
(2,868
)
|
(4,078
)
|
(14,200
)
|
|
|
|
|
|
|
|
|
Other
expenses, net:
|
|
|
|
|
|
|
Interest
expense, net
|
(3
)
|
(3
)
|
(2
)
|
(1
)
|
(9
)
|
|
Loss
on extinguishment of accounts payable
|
-
|
-
|
(135
)
|
-
|
(135
)
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
(2,263
)
|
(4,997
)
|
(3,005
)
|
(4,079
)
|
(14,344
)
|
|
Income
taxes
|
(2
)
|
-
|
-
|
-
|
(2
)
|
|
Net
loss and comprehensive loss
|
(2,265
)
|
(4,997
)
|
(3,005
)
|
(4,079
)
|
(14,346
)
|
|
Accrued
dividend on Series B Preferred stock
|
(247
)
|
(257
)
|
(263
)
|
(263
)
|
(1,030
)
|
|
Deemed
dividend from trigger of down round
|
|
|
|
|
|
|
provision
feature
|
-
|
-
|
(199
)
|
-
|
(199
)
|
|
|
|
|
|
|
|
|
Net
loss attributable to common stockholders
|
$
(2,512
)
|
$
(5,254
)
|
$
(3,467
)
|
$
(4,342
)
|
$
(15,575
)
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
|
|
|
|
|
|
attributable
to common stockholders
|
$
(0.28
)
|
$
(0.53
)
|
$
(0.25
)
|
$
(0.19
)
|
$
(1.12
)
|
|
|
|
|
|
|
|
|
Weighted
average shares used in computing:
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
|
|
|
|
|
|
attributable
to common stockholders
|
9,034,213
|
9,892,016
|
13,895,642
|
22,880,968
|
13,890,041
|
None.
Disclosure Controls and Procedures.
As
required by Rule 13a-15(b) under the Securities Exchange Act of
1934, as amended, (the
Exchange
Act
) our Chief Executive Officer (
CEO
) and our Chief Financial Officer
(
CFO
) conducted an
evaluation as of the end of the period covered by this Annual
Report on Form 10-K, of the effectiveness of our disclosure
controls and procedures as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act. Based on that evaluation, our CEO and our
CFO each concluded that our disclosure controls and procedures are
effective to provide reasonable assurance that information required
to be disclosed in the reports that we file or submit under the
Exchange Act, (i) is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission's rules and forms and (ii) is accumulated and
communicated to our management, including our CEO and our CFO, as
appropriate to allow timely decisions regarding required
disclosure.
Management's Report on Internal Control Over Financial
Reporting.
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined
in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control
system is designed to provide reasonable assurance to our
management and Board of Directors regarding the reliability of
financial reporting and the preparation and fair presentation of
financial statements for external purposes in accordance with U.S.
generally accepted accounting principles.
Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Therefore, even
those systems determined to be effective can provide only
reasonable assurance of achieving their control objectives. Smaller
reporting companies may face additional limitations in achieving
control objectives. Smaller reporting companies typically employ
fewer individuals who are often tasked with a wide range of
responsibilities, making it difficult to segregate duties. Often,
one or two individuals control many, or all, aspects of the smaller
reporting company’s general and financial operations, placing
such individual(s) in a position to override any system of internal
control. Additionally, projections of an evaluation of current
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or
that the degree of compliance with the controls may
deteriorate.
Management
has assessed the effectiveness of our internal control over
financial reporting for our fiscal year ended March 31, 2019.
Management's assessment was based on criteria set forth in
Internal Control - Integrated
Framework (2013)
, issued by the Committee of Sponsoring
Organizations of the Treadway Commission (
COSO
). Based upon this assessment,
management concluded that, as of March 31, 2019, our internal
control over financial reporting was not effective, based upon
those criteria, as a result of the material weaknesses identified
below.
A
material weakness is a deficiency or combination of deficiencies in
internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the annual
or interim financial statements will not be prevented or detected
on a timely basis.
Specifically,
management identified the following control weaknesses: (i) the
size of the Company’s staff does not permit appropriate
segregation of duties to (a) permit appropriate review of
accounting transactions and/or accounting treatment by multiple
qualified individuals, and (b) prevent one individual from
overriding the internal control system by initiating, authorizing
and completing all transactions; and (ii) the Company utilizes
accounting software that does not prevent erroneous or unauthorized
changes to previous reporting periods and/or can be adjusted so as
to not provide an adequate audit trail of entries made in the
accounting software. The Company does not believe that these
control weaknesses have resulted in any deficient financial
reporting because each of our CEO and CFO is aware of his
responsibilities under the SEC's reporting requirements and
personally certifies our financial reports. Further, the Company
has implemented a series of manual checks and balances to verify
that no previous reporting period has been improperly modified and
that no unauthorized entries have been made in the current
reporting period.
Accordingly,
while the Company has identified certain material weaknesses in its
system of internal control over financial reporting, it believes
that it has taken reasonable and sufficient steps to ascertain that
the financial information contained in this Annual Report is in
accordance with U.S. generally accepted accounting principles.
Management has determined that current resources would be more
appropriately applied elsewhere and when resources permit, they
will alleviate the material weaknesses through various steps, which
may include the addition of qualified financial personnel and/or
the acquisition and implementation of alternative accounting
software.
As a result of the enactment of the Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010, and the resulting amendment of
Section 404 of the Sarbanes-Oxley Act of 2002, as a smaller
reporting company, we are not required to provide an attestation
report by our independent registered public accounting firm
regarding internal control over financial reporting for the fiscal
year ended March 31, 2019 or thereafter, until such time as we are
no longer eligible for the exemption for smaller issuers set forth
within the Sarbanes-Oxley Act.
None.
P
ART III
I
tem 10. Directors, Executive Officers
and Corporate Governance
The
information required by this Item is incorporated herein by
reference to the information that will be contained in our proxy
statement related to the 2019 Annual Meeting of Stockholders, which
we intend to file with the Securities and Exchange Commission on or
before July 29, 2019 pursuant to General Instruction G(3) of Form
10-K.
I
tem 11. Executive
Compensation
The
information required by this Item is incorporated herein by
reference to the information that will be contained in our proxy
statement related to the 2019 Annual Meeting of Stockholders, which
we intend to file with the Securities and Exchange Commission on or
before July 29, 2019 pursuant to General Instruction G(3) of Form
10-K.
I
tem 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters
The
information required by this Item is incorporated herein by
reference to the information that will be contained in our proxy
statement related to the 2019 Annual Meeting of Stockholders, which
we intend to file with the Securities and Exchange Commission on or
before July 29, 2019 pursuant to General Instruction G(3) of Form
10-K.
I
tem 13. Certain Relationships and
Related Transactions, and Director Independence
The
information required by this Item is incorporated herein by
reference to the information that will be contained in our proxy
statement related to the 2019 Annual Meeting of Stockholders, which
we intend to file with the Securities and Exchange Commission on or
before July 29, 2019 pursuant to General Instruction G(3) of Form
10-K.
I
tem 14. Principal Accounting Fees and
Services
The
information required by this Item is incorporated herein by
reference to the information that will be contained in our proxy
statement related to the 2019 Annual Meeting of Stockholders, which
we intend to file with the Securities and Exchange Commission on or
before July 29, 2019 pursuant to General Instruction G(3) of Form
10-K.
PA
RT IV
(a)(1) Financial Statements
See Index to Financial Statements under Item 8 on
page 64.
(a)(2) Consolidated Financial Statement Schedules
Consolidated financial statement schedules are omitted because they
are not applicable or are not required or the information required
to be set forth therein is included in the Consolidated Financial
Statements or notes thereto.
(a)(3) Exhibits
The exhibits listed in the Exhibit Index below are filed or
incorporated by reference as part of this report.
|
Exhibit
No.
|
Description
|
|
Agreement
and Plan of Merger by and among Excaliber Enterprises, Ltd.,
VistaGen Therapeutics, Inc. and Excaliber Merger Subsidiary,
Inc.
|
|
|
Articles
of Merger filed with the Nevada Secretary of State on May 24, 2011,
incorporated by reference from Exhibit 3.1 to the Company’s
Current Report on Form 8-K filed on May 31, 2011.
|
|
|
Certificate
of Designations Series A Preferred, incorporated by reference from
Exhibit 3.1 to the Company’s Current Report on Form 8-K
filed on December 23, 2011.
|
|
|
Certificate
of Change filed with the Nevada Secretary of State on August 11,
2014 incorporated by reference from Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed on August 14,
2014.
|
|
|
Certificate
of Designation of the Relative Rights and Preferences of the Series
B 10% Convertible Preferred Stock of VistaGen Therapeutics, Inc.,
filed with the Nevada Secretary of State on May 7, 2015,
incorporated by reference from Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed on May 13,
2015.
|
|
|
Certificate
of Designation of the Relative Rights and Preferences of the Series
C Convertible Preferred Stock of VistaGen Therapeutics, Inc., dated
January 25, 2016, incorporated by reference from Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed on January 29,
2016.
|
|
|
Restated
Articles of Incorporation of VistaGen Therapeutics, Inc., dated
August 16, 2016, incorporated by reference from Exhibit 3.1 to the
Company’s Current Report on Form 8-K, filed on August 17,
2016.
|
|
|
Second
Amended and Restated Bylaws of VistaGen Therapeutics, Inc., dated
August 16, 2016, incorporated by reference from Exhibit 3.2 to the
Company’s Current Report on Form 8-K, filed on August 16,
2016.
|
|
|
Certificate
of Amendment to the Restated and Amended Articles of Incorporation
of VistaGen Therapeutics, Inc., dated September 15, 2017;
incorporated by reference from Exhibit 3.1 to the Company’s
Current Report on Form 8-K, filed on September 20,
2017.
|
|
|
License
Agreement by and between Mount Sinai School of Medicine of New York
University and the Company, dated October 1, 2004.
|
|
|
Non-Exclusive
License Agreement, dated December 5, 2008, by and between
VistaGen and Wisconsin Alumni Research Foundation, as amended by
that certain Wisconsin Materials Addendum, dated February 2,
2009.
|
|
|
Sponsored
Research Collaboration Agreement, dated September 18, 2007, between
VistaGen and University Health Network, as amended by that certain
Amendment No. 1 and Amendment No. 2, dated April 19, 2010
and December 15, 2010, respectively.
|
|
|
License
Agreement, dated October 24, 2001, by and between the University of
Maryland, Baltimore, Cornell Research Foundation and Artemis
Neuroscience, Inc.
|
|
|
Employment
Agreement, by and between, VistaGen and Shawn K. Singh, dated April
28, 2010, as amended May 9, 2011.
|
|
|
Employment
Agreement, by and between, VistaGen and H. Ralph Snodgrass, PhD,
dated April 28, 2010, as amended May 9, 2011.
|
|
|
License
Agreement No. 1, dated as of October 24, 2011 between University
Health Network and VistaGen Therapeutics, Inc., incorporated by
reference from Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed on November 30, 2011.
|
|
|
License
Agreement No. 2, dated as of March 19, 2012 between University
Health Network and VistaGen Therapeutics, Inc., incorporated by
reference from Exhibit 10.57 to the Company’s Annual Report
on Form 10-K filed on July 2, 2012.
|
|
|
Note
Exchange and Purchase Agreement dated as of October 11, 2012 by and
between VistaGen Therapeutics, Inc. and Platinum Long Term Growth
VII, LLP, incorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on October 16,
2012.
|
|
|
Amendment
to Note Exchange and Purchase Agreement as of November 14, 2012
between VistaGen Therapeutics Inc. and Platinum Long Term Growth
VII, LLP, incorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on November 20,
2012.
|
|
|
Amendment
No. 2 to Note Exchange and Purchase Agreement as of January 31,
2013 between VistaGen Therapeutics Inc. and Platinum Long Term
Growth VII, LLP, incorporated by reference from Exhibit 10.1
to the Company’s Quarterly Report on Form 10-Q filed on
February 14, 2013.
|
|
|
Amendment
No. 3 to Note Exchange and Purchase Agreement as of February 22,
2013 between VistaGen Therapeutics Inc. and Platinum Long Term
Growth VII, LLP, incorporated by reference from Exhibit 10.1
to the Company’s Current Report on Form 8-K filed on
February 28, 2013.
|
|
Form of
Warrant to Purchase Common Stock issued to independent members of
the Company’s Board of Directors and its executive officers
on March 3, 2013, incorporated by reference from Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed on March 6,
2013.
|
|
|
Lease
between Bayside Area Development, LLC and VistaGen Therapeutics,
Inc. (California) dated April 24, 2013, incorporated by reference
from Exhibit 10.83 to the Company’s Annual Report on Form
10-K filed July 18, 2013.
|
|
|
Indemnification
Agreement effective May 20, 2013 between the Company and Jon S.
Saxe, incorporated by reference from Exhibit 10.84 to the
Company’s Annual Report on Form 10-K filed on July 18,
2013.
|
|
|
Indemnification
Agreement effective May 20, 2013 between the Company and Shawn K.
Singh, incorporated by reference from Exhibit 10.85 to the
Company’s Annual Report on Form 10-K filed on July 18,
2013.
|
|
|
Indemnification
Agreement effective May 20, 2013 between the Company and H. Ralph
Snodgrass, incorporated by reference from Exhibit 10.86 to the
Company’s Annual Report on Form 10-K filed on July 18,
2013.
|
|
|
Indemnification
Agreement effective May 20, 2013 between the Company and Brian J.
Underdown, incorporated by reference from Exhibit 10.87 to the
Company’s Annual Report on Form 10-K filed on July 18,
2013.
|
|
|
Indemnification
Agreement effective May 20, 2013 between the Company and Jerrold D.
Dotson, incorporated by reference from Exhibit 10.88 to the
Company’s Annual Report on Form 10-K filed on July 18,
2013.
|
|
|
Exchange
Agreement, by and between VistaGen Therapeutics, Inc., and Platinum
Long Term Growth VII, LLC and Montsant Partners, LLC, dated January
25, 2016, incorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on January 29,
2016.
|
|
|
Indemnification
Agreement effective April 8, 2016 between the Company and Jerry B.
Gin, incorporated by reference from Exhibit 10.112 to the
Company’s Annual Report on Form 10-K filed on June 24,
2016.
|
|
|
Underwriting
Agreement, by and between Chardan Capital Markets, LLC and
WallachBeth Capital, LLC, as representatives of the several
underwriters, and VistaGen Therapeutics, Inc., dated May 10, 2016,
incorporated by reference from Exhibit 1.1 to the Company’s
Current Report on Form 8-K filed on May 16, 2016.
|
|
|
Warrant
Agency Agreement, by and between Computershare, Inc. and VistaGen
Therapeutics, Inc., dated May 16, 2016, incorporated by reference
from Exhibit 4.1 to the Company’s Current Report on Form 8-K
filed on May 16, 2016.
|
|
|
Form of
Warrant; incorporated by reference from Exhibit 4.2 to the
Company’s Current Report on Form 8-K filed on May 16,
2016.
|
|
|
Second
Amendment to Employment Agreement by and between VistaGen
Therapeutics, Inc. and Shawn K. Singh, dated June 22, 2016,
incorporated by reference from Exhibit 10.116 to the
Company’s Annual Report on Form 10-K filed on June 24,
2016.
|
|
|
Second
Amendment to Employment Agreement by and between VistaGen
Therapeutics, Inc. and H. Ralph Snodgrass, Ph.D., dated June 22,
2016, incorporated by reference from Exhibit 10.117 to the
Company’s Annual Report on Form 10-K filed on June 24,
2016.
|
|
|
Second
Amendment to Lease between Bayside Area Development and the
Company, effective November 10, 2016, incorporated by reference
from Exhibit 10.1 to the Company’s Quarterly report on Form
10-Q filed on November 15, 2016.
|
|
|
Indemnification
Agreement effective November 10, 2016 between the Company and Mark
A. Smith, incorporated by reference from Exhibit 10.2 to the
Company’s Quarterly report on Form 10-Q filed on November 15,
2016.
|
|
|
Exclusive
License and Sublicense Agreement by and between VistaGen
Therapeutics, Inc. and Apollo Biologics LP, effective December 9,
2016, incorporated by reference from Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q filed on May 11,
2017.
|
|
|
Patent
License Amendment Agreement between VistaGen Therapeutics Inc. and
University Health Network effective December 9, 2016, incorporated
by reference from Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q/A filed on May 1, 2017.
|
|
|
Amended
and Restated 2016 Stock Incentive Plan (formerly the VistaGen
Therapeutics, Inc. 2008 Stock Incentive Plan), incorporated by
reference from Exhibit 10.122 to the Company’s Annual Report
on Form 10-K filed on June 29, 2017.
|
|
Underwriting
Agreement, dated as of August 31, 2017, by and between VistaGen
Therapeutics, Inc. and Oppenheimer & Co. Inc., incorporated by
reference from Exhibit 1.1 to the Company’s Current Report on
Form 8-K filed on August 31, 2017.
|
|
|
Form of
Series A1 Warrant, incorporated by reference from Exhibit 4.1 to
the Company’s Current Report on Form 8-K filed on August 31,
2017.
|
|
|
Form of
Series A2 Warrant, incorporated by reference from Exhibit 4.2 to
the Company’s Current Report on Form 8-K filed on August 31,
2017.
|
|
|
Underwriting Agreement, dated as of December 11, 2017, by and
between VistaGen Therapeutics, Inc. and Oppenheimer & Co. Inc.,
incorporated by reference from Exhibit 1.1 to the Company’s
Current Report on Form 8-K filed on December 13, 2017.
|
|
|
Form of
Warrant, incorporated by reference from Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed on December 13,
2017.
|
|
|
Form of Summer 2018 Private Placement Subscription Agreement,
incorporated by reference from the Company’s Current Report
on Form 8-K filed on August 9, 2018.
|
|
|
Form of
Summer 2018 Private Placement Warrant, incorporated by reference
from the Company’s Current Report on Form 8-K filed on August
9, 2018.
|
|
|
License Agreement (PH94B), by and between VistaGen Therapeutics,
Inc. and Pherin Pharmaceuticals, Inc., dated September 11, 2018,
incorporated by reference from Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on September 13, 2018
|
|
|
Option
Agreement, by and between VistaGen Therapeutics, Inc. and Pherin
Pharmaceuticals, Inc., dated September 11, 2018, incorporated by
reference from Exhibit 10.2 to the Company’s Current Report
on Form 8-K filed on September 13, 2018.
|
|
|
License Agreement (PH10), by and between VistaGen Therapeutics,
Inc. and Pherin Pharmaceuticals, Inc., dated October 24, 2018,
incorporated by reference from Exhibit 10.3 to the Company’s
Quarterly Report on Form 10-Q/A filed on October 30,
2018.
|
|
|
Form of
Fall 2018 Private Placement Subscription Agreement, incorporated by
reference from Exhibit 10.4 to the Company’s Quarterly Report
on Form 10-Q filed on October 29, 2018.
|
|
|
Form of Fall 2018 Private Placement Warrant, incorporated by
reference from Exhibit 10.5 to the Company’s Quarterly Report
on Form 10-Q filed on October 29, 2018.
|
|
|
Indemnification
Agreement, dated January 10, 2019, by and between VistaGen
Therapeutics, Inc. and Ann Cunningham, incorporated by reference
from Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on January 15, 2019.
|
|
|
Indemnification Agreement, dated November 10, 2016, by and between
VistaGen Therapeutics, Inc. and Mark A. McPartland, filed
herewith.
|
|
|
Underwriting
Agreement, dated as of February 26, 2019, by and between VistaGen
Therapeutics, Inc. and William Blair & Company, LLC,
incorporated by reference from Exhibit 1.1 to the Company’s
Current Report on Form 8-K filed on March 4, 2019.
|
|
|
Master
Services Agreement, dated July 11, 2017, by and between VistaGen
Therapeutics, Inc. and Cato Research Ltd., filed
herewith.
|
|
|
Consent
of Independent Registered Public Accounting Firm, filed
herewith.
|
|
|
Certification
of the Company’s Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, filed herewith.
|
|
|
Certification
of the Company’s Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, filed herewith.
|
|
|
Certification
of the Company’s Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
filed herewith.
|
|
|
101.INS
|
XBRL
Instance Document, filed herewith
|
|
101.SCH
|
XBRL
Taxonomy Extension Schema, filed herewith
|
|
101.CAL
|
XBRL
Taxonomy Extension Calculation Linkbase, filed
herewith
|
|
101.DEF
|
XBRL
Taxonomy Extension Definition Linkbase, filed herewith
|
|
101.LAB
|
XBRL
Taxonomy Extension Label Linkbase, filed herewith
|
|
101.PRE
|
XBRL
Taxonomy Extension Presentation Linkbase, filed
herewith
|
_______________
* Incorporated by reference from the like-numbered
exhibit filed with our Current Report on Form 8-K on May 16,
2011.
+ Confidential treatment has been granted for certain confidential
portions of this agreement.
S
IG
NATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of South San Francisco,
State of California, on the 25th day of June, 2019.
|
|
VistaGen Therapeutics, Inc.
|
|
|
|
|
|
|
|
|
Date:
June 25, 2019
|
By:
|
/s/
Shawn K.
Singh
|
|
|
|
|
Shawn K. Singh, J.D.
|
|
|
|
|
Chief Executive Officer
|
|
I
n accordance with the
Exchange Act, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
||
|
/s/ Shawn K.
Singh
Shawn K. Singh, JD
|
|
Chief Executive Officer, and Director
(Principal Executive Officer)
|
|
June 25, 2019
|
|
|
|
|
||
|
/s/ Jerrold D.
Dotson
Jerrold D. Dotson
|
|
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
June 25, 2019
|
|
|
|
|
||
|
/s/
H. Ralph
Snodgrass
H. Ralph Snodgrass, Ph.D
|
|
President, Chief Scientific Officer and Director
|
|
June 25, 2019
|
|
|
|
|
||
|
/s/
Jon S.
Saxe
Jon S. Saxe
|
|
Chairman of the Board of Directors
|
|
June 25, 2019
|
|
|
|
|
||
|
/s/ Brian J.
Underdown
Brian J. Underdown, Ph. D
|
|
Director
|
|
June 25, 2019
|
|
|
|
|
|
|
|
/s/ Jerry B. Gin,
Ph.D
Jerry B. Gin, Ph.D.
|
|
Director
|
|
June 25, 2019
|
|
|
|
|
|
|
|
/s/ Ann M.
Cunningham
Ann M. Cunningham
|
|
Director
|
|
June 25, 2019
|
-120-
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1A. Risk FaItem 1B. Unresolved Staff CommentsItem 1B. Unresolved Staff ComItem 2. PropertiesItem 3. Legal ProceedingsItem 3. Legal ProItem 4. Mine Safety DisclosuresItem 4. MinePart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 5. Market For Registrant S Common Equity, RelItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7. ManagItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 7A. QuanItem 8. Financial Statements and Supplementary DataItem 8. Financial StaItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9. Changes in and DisagreItem 9A. Controls and ProceduresItem 9A. Controls and ProcItem 9B. Other InformationItem 9B. Other InfPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits, Financial Statement SchedulesItem 15. E