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, 2021
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 and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted 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 and post such
files). Yes
☒
No
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the
Exchange Act.
|
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 has filed a report on
and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued
its audit report. Yes
☐
No
☒
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, 2020, the
last business day of the registrant’s second fiscal quarter,
was: $51,365,745.
As of
June 28, 2021,
there were
191,382,350
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,
2021.
TABLE OF CON
TENTS
|
|
|
Item No.
|
|
|
|
Page No.
|
||
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
1
|
|||
|
|
|
|
|
|
31
|
|||
|
|
|
|
|
|
65
|
|||
|
|
|
|
|
|
65
|
|||
|
|
|
|
|
|
65
|
|||
|
|
|
|
|
|
65
|
|||
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
66
|
|||
|
|
|
|
|
|
66
|
|||
|
|
|
|
|
|
66
|
|||
|
|
|
|
|
|
80
|
|||
|
|
|
|
|
|
81
|
|||
|
|
|
|
|
|
121
|
|||
|
|
|
|
|
|
121
|
|||
|
|
|
|
|
|
121
|
|||
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
122
|
|||
|
|
|
|
|
|
122
|
|||
|
|
|
|
|
|
122
|
|||
|
|
|
|
|
|
122
|
|||
|
|
|
|
|
|
122
|
|||
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
123
|
|||
|
|
|
|
|
|
|
|
|
|
|
123
|
||||||||
|
127
|
||||||||
-i-
Forward-Looking Statements
This Annual Report on Form 10-K (
Annual Report or
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 continued impact of the coronavirus
(
COVID
-19
) pandemic, efforts to contain the pandemic and
resulting economic downturn on or affecting our operations and
financial condition;
●
the
availability of capital to satisfy our working capital requirements
and development and commercialization 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, PH94B as a potential
acute treatment of anxiety in adults with social anxiety disorder
(
SAD
) and other anxiety disorders, PH10 as a potential
treatment for major depressive disorder (
MDD
) and other depression-related disorders, and
AV-101 as a potential treatment of MDD and depression-related
disorders and neurological diseases and disorders involving the
Central Nervous System (
CNS
);
●
our ability to initiate and complete necessary preclinical and
clinical studies to advance the development of our product
candidates, including the PALISADE Phase 3 program and other
studies, to successfully complete any such preclinical and clinical
studies, and for those studies to generate positive results;
●
economic,
regulatory and political developments in the U.S. and foreign
countries;
●
the performance of 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 on
whose services we rely to support our
operations;
●
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, CMOs, CROs or other service
providers; 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 one or more of the
forward-looking statements we make in this Annual Report. 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 in this Annual Report 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 this 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 in this Annual Report, whether as a
result of new information, future events or otherwise, except as
required by applicable law.
-ii-
PART 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.
|
B
usiness
|
We are a biopharmaceutical
company committed to developing and commercializing
differentiated new generation medications that go beyond the
current standard of care for widespread anxiety, depression and
other central nervous system (
CNS
) disorders. Our CNS pipeline includes three CNS
product candidates, PH94B Nasal Spray, PH10 Nasal Spray and AV-101,
each with a differentiated profile, favorable safety results
observed in all clinical studies to date and therapeutic potential
in multiple CNS indications. PH94B Nasal Spray (
PH94B
) is being developed for multiple anxiety
disorders. We recently initiated our PH94B Phase 3 development
program, which we refer to as the PALISADE program, with
PALISADE-1, a U.S., multi-center, randomized, double-blind,
placebo-controlled Phase 3 clinical study to evaluate the efficacy
and safety of PH94B for the acute treatment of anxiety in adults
with social anxiety disorder (
SAD
), as well as preparations for the additional
studies required to support our potential U.S. New Drug Application
(
NDA
) for that indication should the PALISADE Phase 3
program be successful. We are also preparing for exploratory Phase
2A clinical studies of PH94B in adults experiencing several other
anxiety disorders. PH10 Nasal Spray (
PH10
) is being developed as a stand-alone treatment
for multiple depression disorders. Exploratory Phase 2A clinical
development of PH10 for major depressive disorder
(
MDD
) has been completed. We are now preparing for
planned Phase 2B clinical development of PH10 for this indication.
We are preparing for a Phase 1B clinical study of AV-101 in
combination with probenecid to assess potential future Phase 2A
clinical development of the combination for MDD or certain
neurological indications. Our goal is to become a biopharmaceutical
company that develops and commercializes innovative CNS therapies
for highly prevalent neuropsychiatry and neurology indications
where current treatments options are inadequate to meet the needs
of millions of patients in markets worldwide.
Our Product Candidates
PH94B
is a synthetic investigational neurosteroid developed from
proprietary compounds called pherines. With its novel mechanism of
action, PH94B is an odorless nasal spray administered at
microgram-level doses to achieve rapid-onset anti-anxiety, or
anxiolytic, effects. The pharmacological activity of PH94B is
fundamentally differentiated from that of all FDA-approved
anti-anxiety drugs, including all antidepressants approved by the
U.S. Food and Drug Administration (
FDA
) for treatment of SAD, as well as
all benzodiazepines and beta blockers prescribed on an off-label
basis. PH94B engages peripheral chemosensory receptors in nasal
passages that trigger a subset of neurons in the main olfactory
bulbs (
OB
) at the base of
the brain. The OB neurons then stimulate inhibitory GABAergic
neurons in the limbic amygdala, decreasing the activity of the
sympathetic nervous system, and facilitating fear extinction
activity of the limbic-hypothalamic system, the main fear and
anxiety center in the brain, as well as in other parts of the
brain. Importantly, PH94B does not require systemic uptake and
distribution to produce its rapid-onset anti-anxiety effects.
Our ongoing PALISADE Phase 3 program
for PH94B is designed to further demonstrate its potential as a
fast-acting, non-sedating, non-addictive acute treatment of anxiety
in adults with SAD. We believe PH94B also has potential to be
developed as a novel treatment for adjustment disorder with
anxiety, postpartum anxiety, post-traumatic stress disorder,
procedural anxiety, panic and other anxiety disorders. PH94B has
been granted Fast Track designation status by the FDA for
development for the acute treatment of SAD.
PH10 is
a synthetic investigational neurosteroid, which also was developed
from proprietary compounds called pherines. Its novel, rapid-onset
mechanism of action (
MOA
)
is fundamentally differentiated from the MOA of all current
treatments for MDD and other depression disorders. PH10 is
self-administered at microgram-level doses as an odorless nasal
spray. PH10 activates nasal chemosensory cells in the nasal
passages, connected to neural circuits in the brain that produce
antidepressant effects. Specifically, PH10 engages peripheral
chemosensory receptors in the nasal passages that trigger a subset
of neurons in the main OB that stimulate neurons in the limbic
amygdala. This is turn increases activity of the
limbic-hypothalamic sympathetic nervous system and increases the
release of catecholamines. Importantly, unlike all currently
approved oral antidepressants (
ADs
), PH10 does not require systemic
uptake and distribution to produce rapid-onset of antidepressant
effects. In all clinical studies to date, PH10 has not caused
psychological side effects (such as dissociation and
hallucinations) or safety concerns that may be associated with
rapid-onset ketamine-based therapy (
KBT
), including intravenous ketamine or
intranasal ketamine (esketamine).
We
believe PH10 has potential to be a new stand-alone treatment for
MDD and several other depression disorders.
AV-101 (4-Cl-KYN) targets the NMDAR (N-methyl-D-aspartate
receptor), an ionotropic glutamate receptor in the brain. Abnormal
NMDAR function is associated with numerous CNS diseases and
disorders. AV-101 is an oral prodrug of 7-chloro-kynurenic acid
(7-Cl-KYNA), which is a potent and selective full antagonist of the
glycine co-agonist site of the NMDAR that inhibits the function of
the NMDAR. However, unlike ketamine and many other NMDAR
antagonists, 7-Cl-KYNA is not an ion channel blocker. At doses
administered in all studies to date, AV-101 has been observed to be
well tolerated and has not exhibited dissociative or hallucinogenic
psychological side effects or safety concerns. In light of these
observations and findings from preclinical studies, we believe that
AV-101, in combination with FDA-approved probenecid, has potential
to become a new oral treatment alternative for certain CNS
indications involving the NMDAR. We are currently preparing to
evaluate AV-101 in combination with probenecid in a Phase 1B
clinical study. The FDA has granted Fast Track designation for
development of AV-101 as a potential adjunctive treatment for MDD
and as a non-opioid treatment for neuropathic pain
(
NP
).
-1-
Our
Strategy
Our
goal is to be a leading biopharmaceutical company committed to
development and commercialization of novel proprietary CNS
therapies that go beyond the current standard of care for treatment
of anxiety, depression and other CNS diseases and disorders with
high unmet need. Key elements of our strategy to achieve our goal
are as follows:
●
Focus on highly
prevalent anxiety, depression and neurological disorders affecting
both adult and pediatric populations where the current standard of
care is undesirable or inadequate to meet patient
needs.
●
Pursue global
development, on our own in the U.S. and on our own or with
collaborators outside the U.S., of novel
proprietary
CNS product candidates which are fundamentally differentiated from
currently approved therapies;
●
Emphasize
development and commercialization of
proprietary
CNS product candidates with potential for (i) rapid-onset
therapeutic effects, (ii) exceptional safety and tolerability, and
(iii) significant commercial potential in multiple CNS indications
in global markets with currently limited, undesirable or inadequate
treatment options;
●
Commercialize on
our own, and retain all commercial rights to, our CNS product
candidates in the U.S. and partner with highly-qualified
third-party collaborators to commercialize our CNS product
candidates in selected markets outside the U.S.; and
●
Continue internal
research and development efforts to (i) evaluate the expanded
therapeutic and commercial potential for our existing CNS product
candidates in the treatment of additional CNS indications and (ii)
identify additional proprietary CNS product candidates for our CNS
product pipeline.
Our CNS Product Pipeline
The
following table summarizes the status of our CNS clinical
development programs as of the filing date of this Annual
Report.
PH94B Nasal Spray
Social Anxiety Disorder
Social Anxiety Disorder (
SAD
) affects over 23 million Americans.
According to the U.S. National Institutes of Health (
NIH
), SAD is the third most common
psychiatric condition after depression and substance abuse. A
person with SAD feels intense, persistent symptoms of anxiety or
fear in certain social situations, such as meeting new people,
dating, being on a job interview, answering a question in class, or
talking to a cashier in a store. Doing common everyday things in
front of people - such as eating or drinking in front of others or
using a public restroom - causes profound anxiety or fear of being
humiliated, evaluated, judged, or rejected. The fear that people
with SAD have in social situations is so strong that they feel it
is beyond their ability to control. SAD can get in the way of going
to work, attending school, or doing a wide variety of things in
situations that have a potential for interpersonal interaction.
People with SAD may worry about these and other things for weeks
before they happen. Sometimes, they end up staying away from places
or events where they think they might have to do something that
will embarrass them. Some people with SAD do not have anxiety in
social situations, but instead have performance anxiety. They feel
physical symptoms of anxiety in performance situations, such as
giving a lecture, a speech or a presentation at school or work, as
well as playing a sports game, or dancing or playing a musical
instrument on stage. Without treatment, SAD can last for many years
or a lifetime and
lead to avoidance and
opportunity costs that can significantly impact a person's
employment, social activities and relationships, and be very
disruptive to overall quality of life.
-2-
Existing treatments for SAD have not been effective acute treatment
options for the large patient population suffering from SAD. Only
three drugs, all chronic oral antidepressant drugs (
AD
s), are approved by the FDA
specifically for treatment of SAD, and no drug is FDA-approved for
acute, on-demand treatment of anxiety in adults with SAD. These
FDA-approved chronic oral ADs have slow onset of effect (often many
weeks or months) and significant side effects that may make them
inadequate or inappropriate treatment alternatives for many
individuals affected by acute SAD episodes. Benzodiazepines, often
referred to as “benzos,” and beta blockers, both of
which have not been studied systematically in controlled studies
for treatment of SAD. They are not FDA-approved to treat SAD, but
are prescribed on an off-label basis by psychiatrists and other
physicians for the treatment of SAD. Unlike ADs, which can take
several weeks to take full effect, benzodiazepines, which act as
direct positive modulators of GABA-A receptors, have a rapid-onset
effect by potentiating GABA-A and slowing the nervous system to
induce a calming effect that can last up to twelve hours. However,
the safety concerns and side effects of benzodiazepines, many of
which are similar to side effects of alcohol, also can appear
rapidly. Extended use of benzodiazepines may lead to physical
dependence and weaning off. Benzodiazepines can take up to many
months, often resulting in severe withdrawal symptoms, including
muscle pain, sweating, blurred vision, depression, seizures and
delirium tremens similar to those experienced with alcohol
withdrawal. Benzodiazepines users can also build up a tolerance
that requires increasingly larger doses over time. When taken with
opioid drugs, benzodiazepine use may be quite dangerous, so much so
that in September 2020 the FDA issued an update to its 2016 Drug
Safety Communication requiring that benzodiazepines display a
“black box” label on bottles to warn against their
potential for dangerous interactions with opioids, as well as
potential risk of abuse, misuse, overuse and addiction. We believe
PH94B, with its rapid-onset anti-anxiety effects, demonstrated in
Phase 2 development without requiring systemic uptake and
distribution, and its lack of benzodiazepine-like side effects and
safety concerns in all clinical studies to date, has potential to
displace both ADs and benzodiazepines in the current treatment
paradigm for SAD, as well as in many other current anxiety disorder
treatment paradigms.
In a
peer-reviewed, published, randomized, double-blind,
placebo-controlled Phase 2 clinical trial (n=91), with Dr. Michael
Liebowitz, the creator of the Liebowitz Social Anxiety Scale
(
LSAS
), as principal
investigator, PH94B was significantly more effective than placebo
in reducing both public-speaking (performance) anxiety (p=0.002)
and social interaction anxiety (p=0.009) in laboratory-induced
challenges of individuals with SAD, as assessed using
patient-reported anxiety ratings on the Subjective Units of
Distress Scale (
SUDS
)
within 15 minutes of self-administration of a non-systemic 1.6
microgram dose of PH94B.
-3-
In all
Phase 1 and Phase 2 studies to date, PH94B’s safety profile
has been exceptional, without indication of abuse potential,
psychological side effects (such as dissociation, euphoria or
hallucinations), sedation or other side effects and safety concerns
that may be associated with ADs approved by the FDA for treatment
of SAD, as well as with benzodiazepines and beta blockers
prescribed off-label.
Based
on its novel mechanism of pharmacological action, rapid-onset of
therapeutic effects and exceptional safety and tolerability profile
in all clinical studies to date, we have initiated our PH94B
PALISADE Phase 3 development program with PALISADE-1, a U.S.,
multi-center, randomized, double-blind, placebo-controlled Phase 3
clinical study to evaluate the efficacy and safety of PH94B for the
acute treatment of anxiety in adults with SAD, as well as
preparations for the additional studies required to support our
potential U.S. New Drug Application (
NDA
) for that indication should our
PH94B PALISADE Phase 3 development program for SAD be successful.
With respect to SAD, our goal is to develop and commercialize
PH94B, on our own in the U.S. and with collaborators in markets
outside the U.S., as the first FDA-approved, fast-acting,
on-demand, acute treatment of anxiety for adults with SAD. We also
plan to develop and commercialize PH94B in a similar manner for the
acute treatment of anxiety in pediatric patients with
SAD.
Adjustment Disorder with Anxiety
Almost
everyone experiences significant life events, changes, or stressors
and while some individuals adjust to such changes within a few
months, others cannot and may struggle with adjustment
disorder. Adjustment disorder with anxiety (
AjDA
) is an emotional or behavioral
reaction considered excessive or disproportionate to a sudden
change, stressful event or major life change, such as loss of work,
divorce or health setback, occurring within three months of the
stressor, and/or significantly impairing a person’s social,
occupational and/or other important areas of functioning. The
stress-related disturbance does not represent normal bereavement or
meet the criteria for another mental disorder and is not merely an
exacerbation of a preexisting mental disorder.
The mental health stressors associated with the COVID-19 pandemic
have directly or indirectly affected hundreds of millions of
individuals around the world and have considerably increased the
prevalence of AjDA. We believe the mental health impact of the
COVID-19 pandemic will be long-term and varied across a wide range
of anxiety disorders. PH94B has potential as a novel, treatment of
anxiety for adults with AjDA, including stress and impaired
functioning as a result of recent-onset of stressors brought on by
the health, safety, economic and social circumstances, including,
but not limited to, circumstances related to and consequences of
the COVID-19 pandemic and civil unrest in 2020. With successful
Phase 2 development of PH94B for acute treatment of anxiety in
adults with SAD completed and Phase 3 development for that
indication now underway, we are preparing to initiate exploratory
Phase 2A clinical development of PH94B for treatment of anxiety in
adults with AjDA. Dr. Michael Liebowitz, Professor of Clinical
Psychiatry at Columbia University and director of the Medical
Research Network in New York City, will serve as Principal
Investigator of the exploratory Phase 2A study.
Postpartum Anxiety
Even
before the COVID-19 pandemic, there was compelling research
indicating that about approximately 17% of new mothers battle
anxiety. Recent research reflects that the prevalence of postpartum
anxiety (
PPA
) among new
mothers increased significantly during the COVID-19 pandemic.
Combined with commonly experienced hormone changes and sleep
deprivation, key additional factors contributing to increasing
mental health challenges among new mothers during the COVID-19
pandemic include job loss, lack of secure housing and access to
healthcare, physical isolation from friends and family, increased
childcare, educational and household duties, and fear and
uncertainty about the state of the world for themselves and their
newborn children.
-4-
With
its potential to produce rapid-onset therapeutic effects at
microgram-level doses, without requiring systemic uptake and
distribution to achieve those therapeutic effects, and without
causing sedation, we believe PH94B may be ideally suited for new
mothers suffering with PPA, especially new mothers who are
interested in breastfeeding and who would prefer a non-systemic,
non-sedating therapeutic alternative to current
therapies.
In
collaboration with clinical investigators at a leading university
medical center in the U.S., we are exploring opportunities to
assess PH94B’s potential as a novel rapid-onset treatment for
PPA in a small exploratory Phase 2A clinical study.
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 seven or eight out of every 100
people will experience PTSD at some point in their lives. The
prevalence of PTSD is even higher in populations at risk for
exposure to trauma, such as military service members and first
responders. PTSD is often accompanied by depression or one or more
of the other anxiety disorders, and PTSD sufferers also have a
higher rate of suicide and often struggle with simultaneous
addiction, leading to an even greater social and economic burden of
the disorder.
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. In Phase 2 studies, at microgram doses,
PH94B has been shown to have rapid-onset anti-anxiety effects in
patients with both generalized anxiety disorder
(
GAD
)
and SAD. PH94B may therefore have utility as an as-needed,
rapid-onset treatment of symptoms of PTSD.
Available
therapeutic options for PTSD are limited, including only two
FDA-approved antidepressants, which have limited efficacy and
undesirable side effects.
In
collaboration with clinical investigators at leading university
medical centers in the U.S., we are exploring opportunities
for exploratory Phase 2A clinical
development of PH94B as a potential as-needed, on-demand,
fast-acting anxiolytic in the PTSD treatment
paradigm.
Generalized 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 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 chronic oral antidepressants
(SSRIs and SNRIs) and benzodiazepines.
PH94B
demonstrated efficacy in a small, exploratory, placebo-controlled
Phase 2 clinical study in patients with GAD. Twenty-one patients
were randomized to receive 200 picograms of 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 Hamilton Anxiety Rating Scale
(
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 larger Phase 2 GAD trial.
We are also assessing PH94B’s potential for exploratory Phase
2A clinical studies in pre-procedural anxiety and panic
disorder.
-5-
PH10 Nasal Spray
Major Depressive Disorder
Depression
is a serious medical illness and a global public health concern
that can occur at any time over a person's life. According to the
World Health Organization (
WHO
), depression is the leading cause
of disability worldwide, affecting over 300 million people.
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. MDD is the chronic, pervasive feeling
of utter unhappiness and suffering, which impairs daily
functioning. In typical depressive episodes, an individual
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
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.
While
current FDA-approved ADs are widely used, about two-thirds of
patients with MDD do not respond to their initial AD treatment.
Inadequate response to current ADs is among the key reasons MDD is
one of the leading public health concerns in the United States,
creating a significant unmet medical need for new agents with
fundamentally different mechanisms of action and safety
profiles.
In a
peer-reviewed, published exploratory Phase 2A clinical study
(n=30), PH10, self-administered at a dose of 6.4 micrograms, was
well-tolerated and demonstrated significant (p=0.022) rapid-onset
antidepressant effects, which were sustained over an 8-week period,
as measured by the Hamilton Depression Rating Scale-17
(
HAM-D-17
), without side
effects or safety concerns that may be caused by certain oral ADs
or intravenous or intranasal ketamine-based therapy (
KBT
).
-6-
With its potential for rapid-onset activity at a microgram-level
dose that does not require systemic uptake and distribution to
achieve sustained antidepressant effects, as well as an exceptional
safety profile, we believe PH10 has transformative potential as an
at-home treatment for multiple indications in global depression
markets. Based on positive results from the exploratory PH10 Phase
2A program, we are conducting two nonclinical studies necessary to
support submission of our Investigational New Drug (
IND
) application to the FDA for our
Phase 2B clinical development program for PH10 as a stand-alone,
rapid-onset treatment of MDD. Our goal is to submit our IND for a
Phase 2B study of PH10 in MDD before the end of 2021, and, if
authorized by the FDA, begin Phase 2B clinical development of PH10
for MDD in the first half of 2022. Although our initial plan is to
develop PH94B as a new stand-alone rapid-onset therapy for MDD, we
also believe PH10 has potential as a stand-alone therapy for
treatment-resistant depression (
TRD
) and postpartum depression
(
PPD
), and as an adjunctive
therapy to augment current FDA-approved ADs for individuals with
MDD, TRD and PPD who have an inadequate response to their current
ADs and to prevent relapse following successful treatment with
KBT.
Treatment-Resistant Depression
Treatment-resistant depression is a form of depression that does
not get better even after an individual has tried adequate and
well-controlled doses of two different oral, FDA-approved
antidepressant therapies taken for a sufficient period of time,
usually at least six weeks. Approximately one-third of adults
with MDD battle depression symptoms that do not respond to current
oral AD treatments, including persistent feelings of sadness,
disturbances in their sleep patterns, low energy and thoughts of
suicide. Certain populations, especially women and elderly
individuals, experience TRD at higher rates than others.
Individuals who endure severe or frequently recurring bouts of
depression also appear to be more susceptible to TRD. Individuals
with MDD
who also have certain underlying medical
conditions, such as thyroid disease, chronic pain, substance abuse
and eating or sleep disorders, also may be at greater risk for
TRD.
While
certain individuals with TRD may benefit from giving their current
oral antidepressant more time to work or by taking a larger dose,
for others, switching to a different class of antidepressant or
augmenting their current AD with an FDA-approved atypical
antipsychotic may lead to remission. In recent years, KBT, which
includes intravenous ketamine or intranasal esketamine given
adjunctively with a new oral AD, has been effective in treating
TRD. However, KBT has significant drawbacks. Certain patients
receiving KBT may experience uncomfortable dissociative symptoms,
hypertension, or other side effects for a few hours after
administration. Additionally, because of these potential side
effects and safety concerns, as well as the potential for abuse,
KBT must be administered in a clinical setting.
PH10,
with its potential for rapid-onset antidepressant effects at a
microgram-level dose and without systemic uptake and distribution,
and, as demonstrated in the PH10 Phase 2A program for MDD, an
exceptional safety profile that is not expected to require
administration in a clinical setting, has transformative potential
in the treatment paradigm as a new stand-alone therapy for TRD and
to prevent relapse following successful treatment for TRD with KBT.
After we submit our IND for Phase 2B development of PH10 as a
stand-alone treatment for MDD, we plan to assess its potential for
exploratory Phase 2A development as a stand-alone treatment for
TRD.
Postpartum Depression
New
mothers face many challenges, both practical and emotional, when
adjusting to life following the birth of a newborn child. PPD
develops around the time a woman gives birth, occurring in
approximately 15% of births, according to the U.S. National
Institutes of Mental Health (
NIMH
). Women with PPD often struggle
with anxiety, sadness, difficulty eating and sleeping, or
disturbing thoughts of worthlessness, shame, guilt or suicide, all
significant depressive symptoms that may commence during pregnancy
or typically within the first few months following childbirth.
Other symptoms of PPD may include agitation, loss of interest in
daily activities, feeling overwhelmed and fatigued, and inability
to concentrate. The current standard of care for PPD involves
psychotherapy and, in certain mothers, off-label use of oral ADs or
a recently-approved intravenous neurosteroid, all of which require
systemic uptake to achieve a therapeutic effect, a potential
complication for new mothers who wish to breastfeed their newborn
child. The recently-approved intravenous neurosteroid requires a
lengthy continuous intravenous infusion (approximately 60 hours)
that must be administered in a clinical setting and may also cause
sedation.
As
demonstrated in an exploratory Phase 2A study of PH10 in adults,
including adult women, PH10, self-administered intranasally in
microgram-level doses, does not require systemic uptake and
distribution to achieve antidepressant effects and, based on its
safety profile in all studies to date, is not expected to require
inconvenient administration in a clinical setting. PH10 is
fundamentally differentiated from the FDA-approved neurosteroid for
PPD, as well as all chronic oral ADs used off-label for treatment
of PPD. Based on prior clinical studies of PH10, including the
exploratory Phase 2A clinical study of PH10 in MDD, we believe it
has potential to be a rapid-onset, non-systemic stand-alone
treatment for PPD. After we submit our IND for Phase 2B development
of PH10 as a stand-alone treatment for MDD, we plan to assess its
potential for exploratory Phase 2A development as a treatment for
PPD.
-7-
Suicidal Ideation
According to the WHO, every year approximately 800,000 people
worldwide take their own life and many more attempt
suicide. Suicidal ideation (
SI
) is characterized as suicidal
thoughts and behavior. 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 SI, the number of Americans who die by
suicide is, since 2010, higher than the number of those who die in
motor vehicle accidents. People of all genders, ages, and
ethnicities can be at risk for suicide. SI 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 VA,
the U.S. Military Veteran population is at significantly higher
risk for suicide than the general population.
We believe PH10 may play a key role in a new treatment paradigm for
SI. Accordingly, based on results of various IND-enabling
preclinical studies, and, after appropriate IND submissions, we
will assess potential exploratory Phase 2A development of PH10 for
stand-alone treatment of SI and/or adjunctive treatment of SI
together with KBT or other oral AD therapies.
AV-101 with Probenecid
AV-101 (4-Cl-KYN) is a novel, oral prodrug that targets the NMDAR
(N-methyl-D-aspartate receptor), an ionotropic glutamate receptor
in the brain. Abnormal NMDAR function is associated with numerous
CNS diseases and disorders. The active metabolite of AV-101,
7-chloro-kynurenic acid (7-Cl-KYNA), is a potent and selective full
antagonist of the glycine coagonist site of the NMDAR that inhibits
the function of the NMDAR. Unlike ketamine and many other NMDAR
antagonists, 7-Cl-KYNA is not an ion channel blocker. 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.
Recent
discoveries from successful AV-101 in vivo preclinical studies
suggest that there is a substantial increase in brain
concentrations of AV-101 and 7-Cl-KYNA when AV-101 is given
together with probenecid, a drug approved by the FDA for treatment
of gout which is known to block activity of certain organic ion
efflux transporters in the kidney. These surprising results in the
brain were first revealed in our recent preclinical studies and are
consistent with well-documented clinical studies of probenecid
increasing the therapeutic levels in the blood of several unrelated
classes of approved drugs, including certain antibacterial,
anticancer and antivirals. Many clinical studies demonstrate that
probenecid is safe and well tolerated. Probenecid administered
adjunctively with AV-101 in an animal model resulted in substantial
increased brain concentrations of AV-101 (7-fold) and 7-Cl-KYNA
(35-fold). We also recently identified that these increases in
brain levels could result from blocking of some of the same
transporters in the blood brain barrier that are expressed in the
kidney, which are used to regulate drug levels in the blood. This
7-Cl-KYNA efflux-blocking effect of probenecid, with the resulting
increased brain levels and duration of 7-Cl-KYNA, suggests the
potential impact of AV-101 with probenecid could result in far more
profound therapeutic benefits for patients with MDD and other
NMDAR-focused CNS diseases and disorders than was demonstrated in
the Elevate Study. 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.
In
addition, a Phase 1B target engagement clinical study completed by
the Baylor College of Medicine (
Baylor
), with financial support from
the U.S. Department of Veterans Affairs (
VA
), involved 10 healthy volunteer U.S.
military Veterans who received single doses of AV-101 (720 mg or
1440 mg) or placebo, in a double-blind, randomized, cross-over
controlled trial. The primary goal of the study was to identify and
define a dose-response relationship between AV-101 and multiple
electrophysiological (
EEG
)
biomarkers related to NMDAR function, as well as blood biomarkers
associated with suicidality (the
Baylor Study
). The findings from the
Baylor Study suggest that, in healthy Veterans, the higher dose of
AV-101 (1440 mg) was associated with dose-related increase in the
40 Hz Auditory Steady State Response (
ASSR
), a robust measure of the
integrity of inhibitory interneuron synchronization that is
associated with NMDAR inhibition.
We are
preparing to initiate a Phase 1B clinical study of AV-101 with
adjunctive probenecid in the second half of 2021 to evaluate their
safety in combination and potential for exploratory Phase 2A
development in one or more of the CNS indications for which we have
existing encouraging preclinical data with AV-101, including MDD,
epilepsy, levodopa-induced dyskinesia, and neuropathic
pain.
Major Depressive Disorder
In
late-2019, we completed a double-blind, placebo-controlled, Phase 2
clinical trial of AV-101 as a potential adjunctive treatment,
together with a standard oral AD, in MDD patients who had an
inadequate response to a stable dose of a standard oral AD (the
Elevate Study
). Topline
results of the Elevate Study (n=199) indicated that the AV-101
treatment arm (1440 mg) did not differentiate from placebo on the
primary endpoint (change in the Montgomery-Åsberg Depression
Rating Scale (
MADRS-10
)
total score compared to baseline). After further analysis, we
believe that this was likely due to sub-therapeutic concentrations
in the brain of 7-Cl-KYNA, the active metabolite of AV-101,
resulting from the activity of certain organic ion efflux
transporters which reduce 7-Cl-KYNA concentrations in the brain. As
in all prior clinical studies, in the Elevate Study, AV-101 was
well tolerated, with no psychotomimetic side effects or
drug-related serious adverse events.
-8-
The
successful Baylor Study and the recent discoveries in our
preclinical studies involving AV-101 and adjunctive probenecid
suggest that it may be possible to increase therapeutic
concentrations and duration of 7-Cl-KYNA in the brain, and thus
increase NMDAR antagonism in MDD patients with an inadequate
response to standard ADs when AV-101 and probenecid are
combined.
Neuropathic Pain
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 subsequent studies in this preclinical model, AV-101
also had positive results using pregabalin as an active control.
AV-101 demonstrated robust analgesic effects, similar to
pregabalin, but fewer side effects as measured in the rotarod
assay. In third party literature, gabapentin and pregabalin, often
prescribed for treatment of NP, have been associated with sedation
and mild cognitive impairment. 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, compared to
gabapentin and pregabalin, as well as successful Phase 1B
development of AV-101 in combination with probenecid, we may
explore Phase 2A clinical development of AV-101, together with
probenecid, as a potential new generation, non-opioid treatment to
reduce debilitating NP. We believe AV-101 in combination with
probenecid has the potential to avoid sedative side effects and
cognitive impairment often associated with other NP treatments, and
reduce the risk of addiction associated with pain medications
targeting opioid receptors.
Levodopa-Induced Dyskinesia associated with Therapy for
Parkinson’s Disease
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, 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. 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. In the U.S., there are an
estimated 150,000 to 200,000 people with PD who are impacted by
LID.
-9-
AV-101 is not a dopamine-based drug candidate. Rather,
AV-101’s active metabolite, 7-Cl-KYNA, is a potent and
selective NMDAR 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
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 preclinical results confirmed our prior
anti-dyskinesia 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 the potential of AV-101, together
with probenecid, 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, upon
successful Phase 1B development of AV-101 in combination with
probenecid, we may explore Phase 2A clinical development of AV-101,
together with probenecid, as a new generation treatment for
LID.
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 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. Upon successful Phase 1B
development of AV-101 in combination with probenecid, we believe
exploratory preclinical data in an epilepsy model, together with
human safety data in all clinical studies to date, may provide
support for exploratory Phase 2A clinical development of AV-101,
together with probenecid, as a potential new generation treatment
for epilepsy.
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 therapeutic methods of
use, including treatment 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 utilize 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 in appropriate markets, 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 the 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:
-10-
PH94B (licensed by us from Pherin Pharmaceuticals, Inc.
(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 will 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, including in the U.S.
PH94B patent application owned by VistaGen
●
Pending U.S. and
Patent Cooperation Treaty (
PCT
) patent applications related to the
treatment of adjustment disorder with anxiety.
Patents
that may be granted on this patent application nominally will
expire in 2041, including in the U.S.
PH10 (licensed by us from Pherin)
●
One granted U.S.
patent related to treatment of depressive disorders;
and
●
Granted foreign
patents 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, including in the U.S.
AV-101
●
Five granted U.S.
patents related to the treatment of depression with AV-101, certain
unit dose formulations of AV-101 effective to treat depression, and
treatment of dyskinesia induced by the administration of L-DOPA
(
LID
);
●
Pending U.S. patent
applications and foreign granted patents and pending foreign patent
applications related to treatment of various disorders, including
depression, LID, neuropathic pain (
NP
), tinnitus and obsessive-compulsive
disorder;
●
Pending PCT patent
application related to the prognostic identification of high and
low responders to treatment of various CNS disorders with AV-101;
and
●
Two granted U.S.
patents, and foreign granted patents and pending foreign patent
applications related to the manufacture of AV-10.
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,
including in the U.S.
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,
including in the U.S. Additionally, therapeutic and certain other
fields of use have been licensed by us to Bayer under the Bayer
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,
including in the U.S.
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.
-11-
The
U.S. and foreign patents and patent applications related to
cartilage and chrondrocyte cells nominally expire in 2034, subject
to extensions that may be available on a country-by-country basis,
including in the U.S.
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 liver
and biliary cells nominally expire between 2021 and 2034, including
in the U.S.
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 U.S. Patent and Trademark
Office (
PTO
). In some
cases, the term of a U.S. patent is shortened by a terminal
disclaimer that reduces its term to align with that of a 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 related 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 our applicable patents, if
any, to extend patent life beyond their normal expiration dates
depending on the length of the clinical trials and other factors
involved in the filing of the relevant NDA.
Data Exclusivity
Some of
our products may also be entitled to certain data exclusivity (that
is not patent-related) under the Federal Food, Drug and Cosmetic
Act (
FDCA
) and its related
regulations. The FDCA provides a five-year period of non-patent
data exclusivity within the U.S. to the first applicant to obtain
approval of an NDA for a new chemical entity (
NCE
). 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
responsible for the pharmacological action of the drug substance.
During the data exclusivity period, an abbreviated new drug
application (
ANDA
), or a
505(b)(2) NDA submitted by another company may not be approved by
the FDA 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 that served as the basis of granting the original
NDA.
However,
an ANDA or a 505(b)(2) NDA application may be submitted after four
years if the innovator NDA holder does not have a patent covering
the product listed with the FDA Orange Book or if the application
contains a certification of patent invalidity or non-infringement
to one of the patents listed with the FDA Orange Book. The FDCA
also provides three years of data 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 the new full
or supplemental NDA. 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.
-12-
Trade Secrets
In
addition to patents, we may rely on trade secrets to develop and
maintain our competitive position. We protect trade secrets, if
any, and also 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’s 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,” for “biotechnology services” in
international class 42, which was renewed in 2021. We have a U.S.
registration application pending for VISTAGEN in international
class 10 for “human and veterinary preparations for medical
uses.”
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, legal, 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 retain third
parties for certain legal manufacturing, nonclinical development,
clinical development and regulatory affairs support.
We have
entered into, and may seek multiple additional strategic
collaborations and relationships focused on development and
commercialization of our product candidates in regions outside the
U.S.
Commercial Agreements
We have
customary clinical supply agreements with multiple CMOs and
customary agreements with multiple CROs to assist us with
advancement and management of our nonclinical, including
manufacturing, and clinical development programs. Each of our
commercial agreements is non‑exclusive, and we have no
material contractual obligations under such agreements, except to
the extent we order supplies or request services to be performed
under specific work orders that we generate with such third-parties
from time to time.
Material License Agreements
Exclusive License and Collaboration Agreements with
Pherin
In September 2018, we acquired from Pherin Pharmaceuticals, Inc.
(
Pherin
) an exclusive worldwide license to develop and
commercialize PH94B. In October 2018, we acquired from Pherin an
exclusive worldwide license to develop and commercialize PH10.
Under the terms of the PH94B and PH10 license agreements, we are
obligated to make additional cash payments, and pay royalties, to
Pherin in connection with our sublicense, development and
commercialization collaborations involving PH94B and/or PH10, as
well as in the event that certain development milestones and
commercial sales are achieved. Additionally, in connection with the
license agreements, we were obligated to pay to Pherin monthly
support payments of $10,000 for a term of the earlier of 18 months
from the date of each license agreement or the termination of the
license agreement; however, no monthly support payment was required
under the 18-month period identified in the PH10 license agreement
if support payments were already being made under the terms of the
PH94B license agreement. In April 2020, we completed all of our
obligations to pay all such monthly support payments to Pherin
under the PH94B license agreement and the PH10 license agreement,
and thus the contractual requirements have been fully
satisfied.
Exclusive License and Collaboration Agreement with AffaMed
Therapeutics, Inc. (formerly EverInsight Therapeutics,
Inc.)
In June 2020, we entered into a license and collaboration
agreement (the
EverInsight License
Agreement
)
with
EverInsight Therapeutics Inc., a company
incorporated under the laws of the British Virgin Islands
(
EverInsight
), pursuant to
which we
granted EverInsight an exclusive license
to develop, manufacture and commercialize PH94B for multiple
anxiety-related disorders in Greater China (Mainland China, Hong
Kong, Macau and Taiwan), South Korea and Southeast Asia (Indonesia,
Malaysia, Philippines, Thailand and Vietnam) (collectively,
the
Territory
).
Subsequent to entering into the
EverInsight License Agreement, in October 2020, EverInsight merged
with AffaMed Therapeutics, Inc., which as a combined, complementary
entity is focusing on developing and commercializing therapeutics
to address ophthalmologic and CNS disorders in Greater China and
beyond. Accordingly, we refer to EverInsight and the EverInsight
License Agreement as AffaMed and the AffaMed Agreement,
respectively.
We retained development,
manufacturing and commercialization rights for PH94B in the rest of
the world.
-13-
Under the terms of the AffaMed Agreement, we received an
upfront payment of $5.0 million in August 2020. We may also receive
up to an additional $172 million in milestone payments upon
AffaMed’s achievement of certain developmental, regulatory
and sales milestone events related to PH94B. In addition, we are
entitled to receive certain royalties on net sales, if any, of
PH94B in the Territory following receipt of any required regulatory
approval. However, AffaMed’s, achievement of any of such
developmental, regulatory and sales milestone events, or commercial
sales of PH94B in the Territory, cannot be guaranteed.
AffaMed has the right to sublicense to affiliates and third
parties in the Territory. AffaMed is responsible for all costs
related to developing, obtaining regulatory approval of and
commercializing PH94B in the Territory. A joint development
committee has been established between the Company
and AffaMed to coordinate and review the development,
manufacturing and commercialization plans with respect to PH94B in
the Territory. Unless earlier terminated due to certain material
breaches of the contract, or otherwise, the AffaMed
Agreement will expire on a jurisdiction-by-jurisdiction
basis until the latest to occur of expiration of the last valid
claim under a licensed patent of PH94B in such jurisdiction, the
expiration of regulatory exclusivity in such jurisdiction or ten
years after the first commercial sale of PH94B in such
jurisdiction.
Manufacturing and Supply
Manufacturing
of the drug substance and drug product for our product candidates
is done by third-parties and must comply with FDA current good
manufacturing practice (
cGMP
) regulations. Our product
candidates are comprised of synthetic small molecules made through
a series of organic chemistry steps starting with commercially
available organic chemical raw materials. We do not currently own
or operate, nor do we plan to own or operate, any manufacturing
facilities for the production of our drug candidates for
nonclinical, clinical or commercial use. We conduct manufacturing
activities under individual project or work orders with independent
contract manufacturing organizations (
CMOs
) to supply all of our nonclinical
and clinical trial needs. We or experts from our CROs conduct
periodic quality audits of their facilities. We believe that our
existing suppliers of our product candidate’s active
pharmaceutical ingredients and drug products will be capable of
providing sufficient quantities of each to meet our nonclinical and
clinical development needs. Other CMOs may be used in the future
for nonclinical and clinical supplies and, subject to approval,
commercial manufacturing.
By
design, we do not currently have any fixed contractual arrangements
in place for either long-term supply or redundant supply of bulk
drug substance or drug product for our product candidates. If our
product candidates are approved, we intend to contract with CMOs to
produce all of our future commercial supplies on our behalf. 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, both in the
U.S. and outside the U.S., to provide API and/or drug
product.
Sales
and Marketing
We intend to build a commercial infrastructure in
the United States in advance of anticipated drug approval of our
product candidates. We believe that we can cost effectively
implement a targeted sales force required to commercialize our
products, if approved, in the United States. Support for this team
will include sales management, internal sales support, distribution
support, and an internal marketing group. Additional requisite
capabilities will include focused management of key accounts such
as managed care organizations, group purchasing organizations, and
government accounts. We may seek co-promotion partners for our
sales efforts to achieve broader reach or call frequency with
United States target physicians. We expect to focus our future
sales and marketing efforts for our product candidates in the
United States, if FDA-approved, on psychiatrists and select primary
care physicians and, should we receive FDA approval for use in
pediatric populations, on select pediatricians who are likely to
see adolescents, as well as nurse practitioners, child
psychiatrists and psychologists who, in some states, are permitted
to prescribe medications.
In order to implement this
infrastructure, we will have to allocate management resources and
make significant financial investments, including some prior to
product approval.
We believe that there are significant market opportunities for our
products outside of the United States. As a result, as we have done
under the AffaMed Agreement, we plan to seek strategic partnerships
with third parties, which may have greater reach and resources by
virtue of their size and experience in the field, for the
development and commercialization of our products in selected
markets outside the United States. We may elect in the future to
utilize additional strategic partners, distributors, or contract
sales forces to assist in the development and commercialization of
our products.
Competition
Our industry is highly competitive and subject to rapid and
significant technological change. The large size and expanding
scope of the CNS markets, especially
the high unmet need in
large and growing global markets for anxiety and depression
disorders,
make them attractive
therapeutic areas for biopharmaceutical businesses. Our potential
competitors include pharmaceutical, biotechnology, and specialty
pharmaceutical companies. While we believe that our employees and
consultants, scientific knowledge, technology, and development
experience provide us with competitive advantages, we face
potential competition from many different sources, including major
pharmaceutical, specialty pharmaceutical, and biotechnology
companies, academic institutions and governmental agencies, and
public and private research institutions. Several of these entities
have robust drug pipelines, readily available capital, and
established research and development organizations. 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 trials, obtaining regulatory approvals, and marketing
approved products than we do. 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 trial sites and patient
registration for clinical trials, 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. 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.
-14-
Currently
there are no FDA-approved therapies for SAD with the mechanism of
action of PH94B, and we are aware of
no company developing a potential acute treatment
of anxiety for adults with SAD that is a nasal spray and involves
the same mechanism of pharmacological action as PH94B. However,
although they have not been systematically developed for treatment
of SAD are not FDA-approved for the acute treatment of anxiety in
adults with SAD, we may face competition to PH94B for acute
treatment of anxiety in adult and pediatric patients with SAD from
off-label use of generic benzodiazepines and generic beta blockers.
In addition, although there are three oral antidepressants approved
by the FDA for treatment of SAD, such drugs do not achieve
rapid-onset therapeutic effects and are associated with undesirable
side effects.
Patients with MDD are typically treated with a variety of oral
antidepressant medications or oral atypical antipsychotics. These
treatments often include generic antidepressants such as:
Fluoxetine (Prozac), previously marketed by Eli Lilly and Company;
sertraline (Zoloft) and venlaxafine (Effexor), both previously
marketed by Pfizer, Inc.; and paroxetine (Paxil) and bupropion
(Wellbutrin), both previously marketed by GlaxoSmithKline.
Treatments may also include currently marketed medications
indicated for MDD such as: Trintellix, with is marketed by Takeda
Pharmaceuticals America, Inc and H. Lundbeck A/S; Viibryd, which is
marketed by Abbvie; and Rexulti which is marketed by Otsuka
America.
Although currently there are no FDA-approved oral
therapies for MDD with the mechanism of
pharmacological
action of either PH10 or
AV-101, we are aware of
numerous
companies that are developing therapies targeting the MDD market,
including, among others, Axsome Therapeutics, Minerva
Neurosciences, Relmada Therapeutics, and Sage Therapeutics.
Additionally, with respect to MDD, we expect that PH10 and AV-101
will have to compete with a variety of non-pharmacological
alternatives for treatment of MDD, such as psychotherapy and
electroconvulsive therapy.
Government Regulation and Product Approval
Government
authorities in the U.S., at the federal, state, and local level,
and in other countries and supranational regions, extensively
regulate, among other things, the research, development, testing,
manufacture, packaging, storage, recordkeeping, labeling,
advertising, promotion, distribution, marketing, import, and export
of pharmaceutical products such as those we are developing. In
addition, healthcare regulatory bodies in the United States and
around the world impose a range of requirements related to the
payment for pharmaceutical products, including laws intended to
prevent fraud, waste, and abuse of healthcare dollars. This
includes, for example, requirements that manufacturers of
pharmaceutical products participating in Medicaid and Medicare
comply with mandatory price reporting, discount, rebate
requirements, and other cost control measures, as well as
anti-kickback laws and laws prohibiting false claims. Some states
also have enacted fraud, waste, and abuse laws that parallel (and
in some cases apply more broadly than) federal laws, and in some
cases price transparency requirements. The processes for obtaining
regulatory approvals in the United States and in foreign countries,
along with subsequent compliance with applicable statutes and
regulations, require the expenditure of substantial time and
financial resources. Further, healthcare is an active area of
governmental scrutiny, and it is reasonable to expect that the
requirements may become more stringent within the foreseeable
future.
FDA Regulation
In the
U.S., the FDA regulates drugs under the FDCA and its implementing
regulations. The process required by the FDA before product
candidates may be marketed in the U.S. generally involves the
following:
·
completion of
preclinical laboratory tests, animal studies, and formulation
studies in compliance with the FDA’s Good Laboratory Practice
(
GLP
)
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
) for each clinical site or
centrally, before each trial may be initiated;
·
adequate and
well‑controlled human clinical trials to establish the safety
and efficacy of the proposed drug candidates for its intended use,
performed in accordance with current Good Clinical Practices
(
cGCP
);
·
development of
manufacturing processes in compliance with current cGMPs to ensure
the drug’s identity, strength, quality, and
purity;
·
compilation of
required information and submission to the FDA of an
NDA;
·
satisfactory
completion of an FDA advisory committee review, if
applicable;
·
satisfactory
completion of an FDA inspection of the manufacturing facility or
facilities at which the product is produced to assess compliance
with cGMPs, and to assure that the facilities, methods, and
controls are adequate to preserve the drug’s identity,
strength, quality, and purity, as well as satisfactory completion
of an FDA inspection of selected clinical sites and selected
clinical investigators to determine GCP compliance;
and
·
FDA review and
approval of the NDA to permit commercial marketing for particular
indications for use.
-15-
Preclinical Studies and IND Submission
The
testing and approval process of product candidates requires
substantial time, effort, and financial resources. Preclinical
studies include laboratory evaluation of drug substance chemistry,
pharmacology, toxicity, and drug product formulation, as well as
animal studies to assess potential safety and efficacy. Such
studies must generally be conducted in accordance with the
FDA’s GLP regulations. Prior to commencing the first clinical
trial with a product candidate, an IND sponsor must submit the
results of the preclinical tests and preclinical literature,
together with manufacturing information, analytical data, any
available clinical data or literature, and proposed clinical study
protocols, among other things, to the FDA as part of an
IND.
An IND
becomes effective 30 days after receipt by the FDA, unless the FDA,
within the 30‑day time period, notifies the applicant of
safety and/or product quality concerns or questions related to one
or more proposed clinical trials and places the trial on a clinical
hold. In such a case, the IND sponsor and the FDA must resolve any
outstanding concerns before the clinical trial can begin. Clinical
holds also may be imposed by the FDA at any time before or during
trials due to safety concerns or noncompliance. As a result,
submission of an IND may not result in FDA authorization to
commence a clinical trial.
Clinical Trials
Clinical
trials involve the administration of the investigational new drug
to human subjects under the supervision of qualified investigators
in accordance with GCP requirements, which include the requirements
that all research subjects provide their informed consent in
writing for their participation in any clinical trial, as well as
review and approval of the study by an IRB. Investigators must also
provide certain information to the clinical trial sponsors to allow
the sponsors to make certain financial disclosures to the FDA.
Clinical trials are conducted under protocols detailing, among
other things, the objectives of the trial, the trial procedures,
the parameters to be used in monitoring safety, the effectiveness
criteria to be evaluated, and a statistical analysis plan. A
protocol for each clinical trial, and any subsequent protocol
amendments, must be submitted to the FDA as part of the IND. In
addition, an IRB at each study site participating in the clinical
trial or a central IRB must review and approve the plan for any
clinical trial, informed consent forms, and communications to study
subjects before a study commences at that site. An IRB considers,
among other things, whether the risks to individuals participating
in the trials are minimized and are reasonable in relation to
anticipated benefits and whether the planned human subject
protections are adequate. The IRB must continue to oversee the
clinical trial while it is being conducted.
Once an
IND is in effect, each new clinical protocol and any amendments to
the protocol must be submitted for FDA review, and to the IRB for
approval. Progress reports detailing the results of the clinical
trials must also be submitted at least annually to the FDA and the
IRB and more frequently if serious adverse events or other
significant safety information is found.
Information
about certain clinical trials, including a description of the study
and study results, must be submitted within specific timeframes to
the NIH for public dissemination on their clinicaltrials.gov
website.
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 regularly
reviews accumulated data and advises the study sponsor regarding
the continuing safety of trial subjects, enrollment of potential
trial subjects, and the continuing validity and scientific merit of
the clinical trial. The data safety monitoring board receives
special access to unblinded data during the clinical trial and may
advise the sponsor to halt the clinical trial if it determines
there is an unacceptable safety risk for subjects or on other
grounds, such as no demonstration of efficacy.
The
manufacture of investigational drugs for the conduct of human
clinical trials (and their active pharmaceutical ingredients) is
subject to cGMP requirements. Investigational drugs and active
pharmaceutical ingredients imported into the U.S. are also subject
to regulation by the FDA relating to their labeling and
distribution. Further, the export of investigational drug products
outside of the United States is subject to regulatory requirements
of the receiving country as well as U.S. export requirements under
the FDCA.
-16-
In
general, for purposes of NDA approval, human clinical trials are
typically conducted in three sequential phases, which may overlap
or be combined.
·
Phase 1
—Studies are initially
conducted in healthy human volunteers or subjects with the target
disease or condition and test the product candidate for safety,
dosage tolerance, structure‑activity relationships, mechanism
of action, absorption, metabolism, distribution, and excretion. If
possible, Phase 1 trials may also be used to gain an initial
indication of product effectiveness.
·
Phase 2
—Controlled studies are
conducted in limited subject populations with a specified disease
or condition to evaluate preliminary efficacy, identify optimal
dosages, dosage tolerance and schedule, possible adverse effects
and safety risks, and expanded evidence of safety.
·
Phase 3—
These adequate and
well‑controlled clinical trials are undertaken in expanded
subject populations, generally at geographically dispersed clinical
trial sites, to generate enough data to provide statistically
significant evidence of clinical efficacy and safety of the product
for approval, to establish the overall risk‑benefit profile
of the product, and to provide adequate information for the
labeling of the product. Typically, two successful Phase 3 trials
are required by the FDA for product approval.
The FDA
may also require, or companies may conduct, additional clinical
trials for the same indication after a product is approved. These
so-called Phase 4 studies may be required by the FDA as a condition
of approval of the NDA, to be satisfied after approval. The results
of Phase 4 studies can confirm the effectiveness of a product
candidate and can provide important safety information. In addition
to the above traditional kinds of clinical trial data required for
the approval of an NDA, the 21st Century Cures Act provides for
potential FDA use of different types and sources of data in
regulatory decision-making, such as patient experience data,
real-world evidence for already approved products, and, for
appropriate indications sought through supplemental marketing
applications. Implementation of this law and related initiatives is
still in progress and we do not know the extent to which we may in
the future be able to utilize these types and sources of data. In
the case of a 505(b)(2) NDA, which is a marketing application in
which sponsors may rely on investigations that were not conducted
by or for the applicant and for which the applicant has not
obtained a right of reference or use from the person by or for whom
the investigations were conducted, some of the above described
studies and preclinical studies may not be required or may be
abbreviated. Bridging studies may be needed, however, to
demonstrate the applicability of the studies that were previously
conducted by other sponsors to the drug that is the subject of the
marketing application.
Clinical
trials at any phase may not be completed successfully within any
specified period, or at all. Regulatory authorities, an IRB, or the
sponsor may suspend or discontinue a clinical trial at any time on
various grounds, including a finding that the subjects are being
exposed to an unacceptable health risk, the clinical trial is not
being conducted in accordance with the FDA’s or the
IRB’s requirements, if the drug has been associated with
unexpected serious harm to the subjects, or based on evolving
business objectives or competitive climate.
Concurrent
with clinical trials, companies usually complete additional animal
studies and must also develop additional information about the
chemistry and physical characteristics of the product candidate 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 product candidate and, among other things,
the manufacturer must develop methods for testing the identity,
strength, quality, potency, and purity of the final product.
Additionally, appropriate packaging must be selected and tested,
and stability studies must be conducted to demonstrate that the
product candidate does not undergo unacceptable deterioration over
its shelf life.
During
the development of a new drug, a sponsor may be able to request a
Special Protocol Assessment (
SPA
) the purpose of which is to reach
agreement with the FDA on the Phase 3 clinical trial protocol
design and analysis that will form the primary basis of an efficacy
claim as well as preclinical carcinogenicity trials and stability
studies. An SPA may only be modified with the agreement of the FDA
and the trial sponsor or if the director of the FDA reviewing
division determines that a substantial scientific issue essential
to determining the safety or efficacy of the drug was identified
after the testing began. An SPA is intended to provide assurance
that, in the case of clinical trials, if the agreed‑upon
clinical trial protocol is followed, the clinical trial endpoints
are achieved, and there is a favorable risk‑benefit profile,
the data may serve as the primary basis for an efficacy claim in
support of an NDA. However, SPA agreements are not a guarantee of
an approval of a product candidate or any permissible claims about
the product candidate. In particular, SPAs are not binding on the
FDA if, among other reasons, previously unrecognized public health
concerns arise during the performance of the clinical trial, other
new scientific concerns regarding the product candidate’s
safety or efficacy arise, or if the sponsoring company fails to
comply with the agreed upon clinical trial protocol.
NDA Submission, Review by the FDA, and Marketing
Approval
Assuming
successful completion of the required clinical and preclinical
testing, the results of product development, including chemistry,
manufacturing, and control (
CMC
) information, non-clinical studies,
and clinical trial results, including negative or ambiguous results
as well as positive findings, are all submitted to the FDA, along
with the proposed labeling, as part of an NDA requesting approval
to market the product for one or more indications. In most cases,
the submission of an NDA is subject to a substantial application
user fee, authorized every five years by Congress under the
Prescription Drug User Fee Act (
PDUFA
). User fees must be paid at the
time of the first submission of the application, even if the
application is being submitted on a rolling basis, and if approved,
program fees must be paid on an annual basis. Product candidates
that are designated as orphan drugs, which are further described
below, are not subject to application user fees unless the
application includes an indication other than the orphan
indication.
-17-
In
addition, under the Pediatric Research Equity Act (
PREA
) an NDA or supplement to an NDA
for a new active ingredient, indication, dosage form, dosage
regimen, or route of administration must contain data that are
adequate to assess the safety and effectiveness 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. A
sponsor who is planning to submit a marketing application for a
drug product that includes a new active ingredient, new indication,
new dosage form, new dosing regimen or new route of administration
must submit an initial Pediatric Study Plan (
PSP
) within 60 days of an End-of-Phase
2 meeting or as may be agreed between the sponsor and the 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. The 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 preclinical studies, early phase
clinical studies or other clinical development programs. The FDA
may, on its own initiative or at the request of the applicant,
grant deferrals for submission of some or all pediatric data until
after approval of the product for use in adults, or full or partial
waivers from the pediatric data requirements. The FDA also may
require submission of a risk evaluation and mitigation strategy
(
REMS
) to ensure that the
benefits of the drug outweigh the risks of the drug. The REMS plan
could include medication guides, physician communication plans, and
elements to assure safe use, such as restricted distribution
methods, patient registries, or other risk minimization tools. An
assessment of the REMS must also be conducted at set intervals.
Following product approval, a REMS may also be required by the FDA
if new safety information is discovered and the FDA determines that
a REMS is necessary to ensure that the benefits of the drug
continue to outweigh the risks of the drug.
Once
the FDA receives an application, it will determine within 60 days
whether the NDA as filed is sufficiently complete to permit a
substantive review (with this decision often referred to as the NDA
being “accepted for filing.”). If the FDA determines
that the NDA is not sufficiently complete to permit a substantive
review, the application must be resubmitted with additional
information requested by the FDA. The resubmitted application is
also subject to review before the FDA accepts it for filing. Once
the submission is accepted for filing, the FDA begins an
in‑depth substantive review of the NDA.
The FDA
has agreed to a set of performance goals and procedures under PDUFA
to review 90% of all applications within ten months from the 60-day
filing date for its initial review of a standard NDA for a New
Molecular Entity (
NME
). For
non-NME standard applications, the FDA has set the goal of
completing its review of 90% of all applications within ten months
from the submission receipt date. Such deadlines are referred to as
the PDUFA date. The PDUFA date is only a goal, thus, the FDA does
not always meet its PDUFA goal dates. The review process and the
PDUFA goal date may also be extended if the FDA requests, or the
NDA sponsor otherwise provides, substantial additional information
or clarification regarding the submission.
The FDA
may refer an application to an advisory committee for review,
evaluation and recommendation as to whether the application should
be approved, and applications for new molecular entities are
generally discussed at advisory committee meetings unless the FDA
determines that this type of consultation is not needed under the
circumstances.
An
advisory committee is typically a panel that includes clinicians
and other experts, which review, evaluate, and make a
recommendation as to whether the application should be approved and
under what conditions. The FDA is not bound by the recommendations
of an advisory committee, but it considers such recommendations
carefully when making decisions and typically follows such
recommendations.
The FDA
reviews applications to determine, among other things, whether a
product is safe and effective for its intended use and whether the
manufacturing methods and controls are adequate to assure and
preserve the product’s identity, strength, quality, safety,
potency, and purity. Before approving an NDA, the FDA typically
will inspect the facility or facilities where the product is
manufactured, referred to as a Pre‑Approval Inspection. The
FDA will not approve an application unless it determines that the
manufacturing processes and facilities, including contract
manufacturers and subcontractors, are in compliance with cGMP
requirements and adequate to assure consistent production of the
product within required specifications. Additionally, before
approving an NDA the FDA will inspect one or more clinical trial
sites to assure compliance with GCPs.
The
approval process is lengthy and difficult, and involves numerous
FDA personnel assigned to review different aspects of the NDA, and
the FDA may refuse to approve an NDA if the applicable regulatory
criteria are not satisfied or may require additional preclinical,
CMC, or other data and information. Uncertainties can be presented
by reviewers’ ability to exercise judgment and discretion
during the review process. Even if such 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 an applicant interprets the same
data.
-18-
After
evaluating the NDA and all related information, including the
advisory committee recommendation, if any, and inspection reports
regarding the manufacturing facilities and clinical trial sites,
the FDA may issue an approval letter, or, in some cases, a Complete
Response Letter (
CRL
). If a
CRL is issued, the applicant may either resubmit the NDA,
addressing all of the deficiencies identified in the letter;
withdraw the application; or request an opportunity for a hearing.
A CRL indicates that the review cycle of the application is
complete and the application is not ready for approval in its
current form and describes all of the specific deficiencies that
the FDA identified in the NDA. A CRL generally contains a statement
of specific conditions that must be met in order to secure final
approval of the NDA and may require additional clinical or
preclinical testing in order for the FDA to reconsider the
application. The deficiencies identified may be minor, for example,
requiring labeling changes; or major, for example, requiring
additional clinical trials. The FDA has the goal of reviewing 90%
of application and efficacy supplement resubmissions in either two
or six months (from receipt) for a Class 1 or Class 2 resubmission,
respectively. For non-efficacy supplements (i.e., labeling and
manufacturing supplements), FDA’s goal is to review the
supplement within the same length of time (from receipt) as the
initial review cycle (excluding an extension caused by a major
amendment of the initial supplement).
Even
with the submission of additional information, the FDA ultimately
may decide that the application does not satisfy the regulatory
criteria for approval. If and when the issues identified in a CRL
have been addressed and resolved to the FDA’s satisfaction,
the FDA may issue an approval letter. An approval letter authorizes
commercial marketing of the drug for specific indications and with
specific prescribing information which was reviewed in connection
with the NDA.
Even if
the FDA approves a product, it may limit the approved indications
for use of the product, require that contraindications, warnings,
or precautions be included in the product labeling, including a
boxed warning, require that post‑approval studies, including
Phase 4 clinical trials, be conducted to further assess a
drug’s safety and efficacy after approval, require testing
and surveillance programs to monitor the product after
commercialization, or impose other conditions, including
distribution restrictions or other risk management mechanisms under
a REMS which can materially affect the potential market and
profitability of the product. The FDA may also not approve label
statements that are necessary for successful commercialization and
marketing.
After
approval, some types of changes to the approved product, such as
adding new indications, manufacturing changes, and additional
labeling claims, are subject to further testing requirements and
FDA review and approval. The FDA may also withdraw the product
approval if compliance with the pre‑ and post‑marketing
regulatory standards are not maintained or if problems occur after
the product reaches the marketplace. Further, should new safety
information arise, additional testing, product labeling, or FDA
notification may be required.
505(b)(2) Approval Process
Section
505(b)(2) of the FDCA, provides an alternate regulatory pathway to
FDA approval for new or improved formulations or new uses of
previously approved drug products. Specifically, Section 505(b)(2)
was enacted as part of the Drug Price Competition and Patent Term
Restoration Act of 1984, commonly referred to as the
Hatch‑Waxman Act amendments, and permits the filing of an NDA
where at least some of the information required for approval comes
from studies not conducted by or for the applicant and for which
the applicant has not obtained a right of reference or use from the
person by or for whom the investigations were conducted. The
applicant may rely, in part, upon the FDA’s prior findings of
safety and effectiveness for an approved product that acts as the
reference listed drug or on published scientific literature, in
support of its application. The FDA may also require 505(b)(2)
applicants to perform additional studies or measurements to support
the changes from the reference listed drug as well as bridging
studies to the reference listed drug. The FDA may then approve the
new product candidate for all or some of the labeled indications
for which the referenced product has been approved, as well as for
any new indication sought by the Section 505(b)(2)
applicant.
Orange Book Listing
Section
505 of the FDCA describes three types of marketing applications
that may be submitted to the FDA to request marketing authorization
for a new drug. A section 505(b)(1) NDA is an application that
contains full reports of investigations of safety and efficacy. A
section 505(b)(2) NDA is an application in which the applicant, in
part, relies on investigations that were not conducted by or for
the applicant and for which the applicant has not obtained a right
of reference or use from the person by or for whom the
investigations were conducted. Section 505(j) establishes an
abbreviated approval process for a generic version of approved drug
products through the submission of an Abbreviated New Drug
Application (
ANDA
). An ANDA
is an application for marketing of a generic drug product that has
the same active ingredients, dosage form, strength, route of
administration, labeling, performance characteristics, and intended
use, among other things, to a previously approved product. Limited
changes must be pre‑approved by the FDA via a suitability
petition. ANDAs are termed “abbreviated” because they
are generally not required to include preclinical and clinical data
to establish safety and efficacy. Instead, generic applicants must
scientifically demonstrate that their product is bioequivalent to,
or performs in the same manner as, the innovator drug through in
vitro, in vivo, or other testing. The generic version must deliver
the same amount of active ingredients into a subject’s
bloodstream in the same amount of time as the innovator drug and,
under state substitution laws, may be substituted at the pharmacy
for the reference listed drug.
In
seeking approval for a drug through an NDA, including a 505(b)(2)
NDA, applicants are required to identify to the FDA patents that
contain claims that are directed to the applicant’s product
and/or method(s) of use. Upon approval of an NDA, each of the
identified patents is then listed in
Approved Drug Products with Therapeutic
Equivalence Evaluations
, also known as the Orange
Book.
-19-
An
applicant who files an ANDA seeking approval of a generic version
of a drug listed in the Orange Book or a 505(b)(2) NDA referencing
a drug listed in the Orange Book must make patent certifications to
the FDA that (1) no patent information on the drug or method of use
that is the subject of the application has been submitted to the
FDA; (2) the patent has expired; (3) the date on which the patent
has expired and approval will not be sought until after the patent
expiration; or (4) in the applicant’s opinion and to the best
of its knowledge, the patent is invalid, unenforceable, or will not
be infringed upon by the manufacture, use, or sale of the drug
product for which the application is submitted. The last
certification is known as a paragraph IV certification. Generally,
the ANDA or 505(b)(2) NDA approval cannot be made effective until
all listed patents have expired, except where the ANDA or 505(b)(2)
NDA applicant challenges a listed patent through a paragraph IV
certification or if the applicant is not seeking approval of a
patented method of use. If the applicant does not challenge the
listed patents or does not indicate that it is not seeking approval
of a patented method of use, the ANDA or 505(b)(2) NDA application
approval will not be made effective until all of the listed patents
claimed by the referenced product have expired.
If the
competitor has provided a paragraph IV certification to the FDA,
the competitor must also send notice of the paragraph IV
certification to the holder of the NDA for the reference listed
drug and the patent owner within 20 days after the application has
been accepted for filing by the FDA. The NDA holder or patent owner
may then initiate a patent infringement lawsuit in response to the
notice of the paragraph IV certification. The filing of a patent
infringement lawsuit within 45 days of the receipt of a paragraph
IV certification notice prevents the FDA from making the approval
of the ANDA or 505(b)(2) application effective until the earlier of
30 months from the date of the lawsuit, expiration of the patent,
settlement of the lawsuit, a decision in the infringement case that
is favorable to the applicant or such shorter or longer period as
may be ordered by a court. This prohibition is generally referred
to as the automatic 30‑month stay.
In
practice, where an ANDA or 505(b)(2) NDA applicant files a
paragraph IV certification, the NDA holder or patent owners often
take action to trigger the automatic 30‑month stay, resulting
in patent litigation that may take many months or years to resolve.
Thus, approval of an ANDA or 505(b)(2) application could be delayed
for a significant period of time depending on the patent
certification the applicant makes and the reference drug
sponsor’s decision to initiate patent
litigation.
Regulatory Exclusivity
Regulatory
exclusivity provisions under the FDCA can also delay the submission
or the approval effective date of certain applications. A
regulatory exclusivity can provide the holder of an approved NDA
protection from new competition in the marketplace for the
innovation represented by its approved drug. Five years of
exclusivity are available for NCEs. An NCE is a drug that contains
no active moiety that has been approved by the FDA in any other
NDA. An active moiety is the molecule or ion excluding those
appended portions of the molecule that cause the drug to be an
ester, salt, including a salt with hydrogen or coordination bonds,
or other noncovalent derivatives, such as a complex, chelate, or
clathrate, of the molecule, responsible for the therapeutic
activity of the drug substance. During the NCE exclusivity period,
the FDA may not accept for review an ANDA or a 505(b)(2) NDA
application by another company that contains the previously
approved active moiety. An ANDA or 505(b)(2) application, however,
may be submitted one year before NCE exclusivity expires if a
paragraph IV certification is filed.
Three
years of exclusivity are available to the holder of an NDA,
including a 505(b)(2) NDA, for a particular condition of approval,
or change to a marketed product, such as a new formulation or
indication for a drug product that contains an active moiety that
has been previously approved, when the application contains reports
of new clinical investigations, other than bioavailability studies,
conducted by the sponsor that were essential to approval of the
application. Changes in an approved drug product that affect its
active ingredient(s), strength, dosage form, route of
administration or conditions of use may be granted this exclusivity
if a new clinical investigation (
NCI
) was essential to approval of the
application containing those changes. During the NCI exclusivity
period, FDA may not approve an ANDA or 505(b)(2) NDA by another
company for the condition of the new drug’s approval. NCE and
NCI exclusivities 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
preclinical studies and adequate and well‑controlled clinical
trials necessary to demonstrate safety and efficacy.
Pediatric
exclusivity is a regulatory exclusivity in the United States that
provides for the attachment of an additional six months of
marketing protection to the term of any existing regulatory and
statutory exclusivity, including the non‑patent exclusivity
periods described above as well as applicable patent terms. This
six‑month exclusivity may be granted if an NDA sponsor
submits pediatric data that fairly respond to a written request
from the FDA for such data. The data do not need to show the
product to be effective in the pediatric population studied;
rather, if the clinical trial is deemed to fairly respond to the
FDA’s request, the additional protection is granted. If
reports of requested pediatric studies are submitted to and
accepted by the FDA within the required time frames, whatever
statutory or regulatory periods of exclusivity or Orange Book
listed patent protection cover the drug are extended by six months.
This is not a patent term extension, but it effectively extends the
regulatory period during which the FDA cannot make an ANDA or
505(b)(2) application approval effective as a result of regulatory
exclusivity or listed patents. Moreover, pediatric exclusivity
attaches to all formulations, dosage forms, and indications for
products with existing marketing exclusivity or patent life that
contain the same active moiety as that which was
studied.
The
Orphan Drug Act provides incentives for the development of drugs
intended to treat rare diseases or conditions, which generally are
diseases or conditions affecting less than 200,000 individuals
annually in the United States, or affecting more than 200,000 in
the United States and for which there is no reasonable expectation
that the cost of developing and making the drug available in the
United States will be recovered from United States sales. If a
product receives FDA approval for the indication for which it has
orphan designation, the product is generally entitled to orphan
drug exclusivity, which means the FDA may not approve any other
application to market the same drug for the same indication for a
period of seven years, except in limited circumstances, such as a
showing of clinical superiority over the product with orphan
exclusivity. Orphan drug designation also entitles a party to
financial incentives such as opportunities for grant funding
towards clinical study costs, tax advantages, and application
user‑fee waivers.
-20-
Special FDA Expedited Review and Approval Programs
The FDA
has various programs, including Fast Track designation, Priority
Review and Breakthrough designation, that are intended to expedite
or simplify the process for the development and FDA review of
certain drug products that are intended for the treatment of
serious or life-threatening diseases or conditions, and demonstrate
the potential to address unmet medical needs or present a
significant improvement over existing therapy. The purpose of these
programs is to provide important new drugs to patients earlier than
under standard FDA review procedures.
To be
eligible for a Fast Track designation, the FDA must determine,
based on the request of a sponsor, that a product is intended to
treat a serious or life-threatening disease or condition and
demonstrates the potential to address an unmet medical need. The
FDA will determine that a product will fill an unmet medical need
if the product will provide a therapy where none exists or provide
a therapy that may be potentially superior to existing therapy
based on efficacy, safety, or public health factors. If Fast Track
designation is obtained, drug sponsors may be eligible for more
frequent development meetings and correspondence with the
FDA.
In
addition, if an applicant obtains “rolling review,” the
FDA may accept and initiate review of sections of an NDA before the
application submission is complete, although it is not guaranteed
that FDA will commence review before the application submission is
complete, and the timing of the review depends on a number of
factors including availability of review personnel at the FDA, and
competing agency priorities among other things. The applicant must
provide, and the FDA must agree to, a schedule for the remaining
information after the initial section of the NDA.
In some
cases, a Fast Track product may be eligible for Accelerated
Approval or Priority Review.
The FDA
may give a Priority Review designation to drugs that are intended
to treat serious conditions and, if approved, would provide
significant improvements in the safety or effectiveness of the
treatment, diagnosis, or prevention of serious conditions. A
Priority Review designation means that the goal for the FDA is to
review an application within six months of receipt, rather than the
standard review of ten months under current PDUFA guidelines, of
the 60‑day filing date for NMEs and within six months of the
submission receipt date for non‑NMEs. Products that are
eligible for Fast Track designation may also be considered
appropriate to receive a Priority Review.
Moreover,
under the provisions of the Food and Drug Administration Safety and
Innovation Act (
FDASIA
)
enacted in 2012, a sponsor can request designation of a product
candidate as a “breakthrough therapy.” A breakthrough
therapy is defined as a drug that is intended, alone or in
combination with one or more other drugs, to treat a serious or
life‑threatening disease or condition, and preliminary
clinical evidence indicates that the drug may demonstrate
substantial improvement over existing therapies on one or more
clinically significant endpoints, such as substantial treatment
effects observed early in clinical development. Drugs designated as
breakthrough therapies are eligible for the Fast Track designation
features as described above, intensive guidance on an efficient
drug development program beginning as early as Phase 1 trials, and
a commitment from the FDA to involve senior managers and
experienced review staff in a proactive collaborative,
cross‑disciplinary review.
Even if
a product qualifies for one or more of these programs, the FDA may
later decide that the product no longer meets the conditions for
qualification or decide that the time period for FDA review or
approval will not be shortened.
Post‑approval Requirements
Any
product manufactured or distributed pursuant to FDA approvals are
subject to pervasive and continuing regulation by the FDA, as well
as other federal and state agencies, including, among other things,
requirements related to manufacturing, recordkeeping, and
reporting, including adverse experience reporting, drug shortage
reporting, and other periodic reporting; drug supply chain security
surveillance and tracking requirements; product sampling and
distribution; advertising; marketing; promotion; certain electronic
records and signatures; licensure in certain states for the
manufacturing and distribution of drug products; and post-approval
obligations imposed as a condition of approval, such as Phase 4
clinical trials, REMS, and surveillance to assess safety and
effectiveness after commercialization.
After
approval, most changes to the approved product, such as adding new
indications or other labeling claims are subject to prior FDA
review and approval. There are also continuing annual prescription
drug program user fee requirements for any approved products. In
addition, 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 list their drug products, and are subject to periodic
announced and unannounced inspections by the FDA and these state
agencies for compliance with cGMP and other requirements, which
impose certain procedural and documentation requirements upon the
company and third‑party manufacturers.
Changes
to the manufacturing process are strictly regulated and often
require prior FDA approval or notification before being
implemented. FDA regulations also require investigation and
correction of any deviations from cGMP and product specifications
and impose reporting and documentation requirements upon the
sponsor and any third‑party manufacturers that the sponsor
may decide to use. Accordingly, manufacturers must continue to
expend time, money, and effort in the area of production and
quality control to maintain cGMP compliance.
-21-
The FDA
also strictly regulates marketing, labeling, advertising, and
promotion of products that are placed on the market. A company can
make only those claims relating to safety and efficacy, purity, and
potency that are approved by the FDA. Physicians, in their
independent professional medical judgment, may prescribe legally
available products for unapproved indications that are not
described in the product’s labeling and that differ from
those tested and approved by the FDA. Pharmaceutical companies,
however, are required to promote their drug products only for the
approved indications and in accordance with the provisions of the
approved label. The FDA and other agencies actively enforce the
laws and regulations prohibiting the promotion of off‑label
uses, and a company that is found to have improperly promoted
off‑label uses may be subject to significant liability,
including, but not limited to, criminal and civil penalties under
the FDCA and False Claims Act, exclusion from participation in
federal healthcare programs, mandatory compliance programs under
corporate integrity agreements, debarment, and refusal of
government contracts. Recent court decisions have impacted the
FDA’s enforcement activity regarding off-label promotion in
light of First Amendment considerations; however, there are still
significant risks in this area in part due to the potential False
Claims Act exposure. Further, the FDA has not materially changed
its position on off-label promotion following legal setbacks on
First Amendment grounds and the Department of Justice has
consistently asserted in FCA briefings that “speech that
serves as a conduit for violations of the law is not
constitutionally protected.”
The
Drug Supply Chain Security Act (
DSCSA
) imposes obligations on
manufacturers of prescription biopharmaceutical products for
commercial distribution, regulating the distribution of the
products at the federal level, and sets certain standards for
federal or state registration and compliance of entities in the
supply chain (manufacturers and repackagers, wholesale
distributors, third-party logistics providers, and dispensers). The
DSCSA preempts certain previously enacted state pedigree laws and
the pedigree requirements of the Prescription Drug Marketing Act
(
PDMA
). Trading partners
within the drug supply chain must now ensure certain product
tracing requirements are met that they are doing business with
other authorized trading partners; and they are required to
exchange transaction information, transaction history, and
transaction statements. Further, the DSCSA limits the distribution
of prescription pharmaceutical products and imposes requirements to
ensure overall accountability and security in the drug supply
chain. Product identifier information (an aspect of the product
tracing scheme) is also now required. The DSCSA requirements,
development of standards, and the system for product tracing have
been and will continue to be phased in over a period of years
through 2023, and subject companies will need to continue their
implementation efforts. Many states still have in place licensure
and other requirements for manufacturers and distributors of drug
products. The distribution of product samples continues to be
regulated under the PDMA, and some states also impose regulations
on drug sample distribution.
Later
discovery of previously unknown problems with a product, including
adverse events of unanticipated severity or frequency, or with
manufacturing processes, or failure to comply with regulatory
requirements, may result in significant regulatory actions. Such
actions may include refusal to approve pending applications,
license suspension or revocation, withdrawal of an approval,
imposition of a clinical hold or termination of clinical trials,
warning letters, untitled letters, modification of promotional
materials or labeling, provision of corrective information,
imposition of post‑market requirements including the need for
additional testing, imposition of distribution or other
restrictions under a REMS, product recalls, product seizures or
detentions, refusal to allow imports or exports, total or partial
suspension of production or distribution, FDA debarment,
injunctions, fines, consent decrees, corporate integrity
agreements, debarment from receiving government contracts and new
orders under existing contracts, exclusion from participation in
federal and state healthcare programs, restitution, disgorgement,
or civil or criminal penalties including fines and imprisonment,
and may result in adverse publicity, among other adverse
consequences.
Fraud and Abuse, and Transparency Laws and Regulations
Following
product approval, our business activities, including but not
limited to research, sales, promotion, marketing, distribution,
medical education, sponsorships, relationships with prescribers and
other referral sources, and other activities will be subject to
regulation by numerous federal and state regulatory and law
enforcement authorities in the United States in addition to the
FDA, including potentially the Department of Justice, the
Department of Health and Human Services and its various divisions,
including the Centers for Medicare & Medicaid Services
(
CMS
), the Office of
Inspector General (
OIG
),
and the Health Resources and Services Administration (
HRSA
), the Department of Veterans
Affairs, the Department of Defense, and certain state and local
governments. Our business activities must comply with numerous
healthcare laws, including but not limited to, anti‑kickback
and false claims laws and regulations as well as data privacy and
security laws and regulations, which are described
below.
The
federal Anti-Kickback Statute prohibits, among other things, any
person or entity, from knowingly and willfully offering, paying,
soliciting, or receiving any remuneration, directly or indirectly,
overtly or covertly, in cash or in kind, to induce or in return for
purchasing, leasing, ordering, or arranging for or recommending the
purchase, lease, furnishing, or order of any item or service
reimbursable under Medicare, Medicaid, or other federal healthcare
programs, in whole or in part. The term “remuneration”
has been interpreted broadly to include anything of value. The
Anti-Kickback Statute has been interpreted to apply to arrangements
between pharmaceutical manufacturers on one hand and prescribers,
purchasers, formulary managers, and beneficiaries on the other.
There are certain statutory exceptions and regulatory safe harbors
protecting some common activities from prosecution. The exceptions
and safe harbors are drawn narrowly, and practices that involve
remuneration that may be alleged to be intended to induce
prescribing, purchases, or recommendations may be subject to
scrutiny if they do not qualify for an exception or safe harbor.
Failure to meet all of the requirements of a particular applicable
statutory exception or regulatory safe harbor, however, does not
make the conduct per se illegal under the Anti-Kickback Statute.
Instead, the legality of the arrangement will be evaluated on a
case by case basis based on a cumulative review of all of its facts
and circumstances to determine whether one purpose of an
arrangement involving remuneration is to induce referrals of
federal healthcare covered business. The Patient Protection and
Affordable Care Act (
ACA
)
of 2010, as amended, modified the intent requirement under the
Anti-Kickback Statute to a stricter standard, such that a person or
entity no longer needs to have actual knowledge of the statute or
specific intent to violate it in order to have committed a
violation. The ACA further amended the federal civil False Claims
Act to provide that a claim that includes items or services
resulting from a violation of the federal Anti-Kickback Statute
constitutes a false or fraudulent claim under the False Claims Act.
Therefore, either the federal government or private citizens under
the False Claims Act’s qui tam provisions (discussed further
below) can bring an action under the False Claims Act for
violations of the Anti-Kickback Statute, potentially exposing an
alleged violator to substantial monetary damages and penalties.
Certain Anti-Kickback safe harbor provisions that protect the
rebates paid by drug manufacturers to third parties may also be
repealed or materially revised, as contemplated in a recent
regulatory proposal.
-22-
The
government has asserted False Claims Act liability against
manufacturers by alleging that improper arrangements with ordering
physicians caused them or another provider to file false claims in
violation of the False Claims Act or that manufacturers’
support of patient assistance programs improperly induced
beneficiaries to choose their products in violation of the
Anti-Kickback Statute. Sales, marketing and business arrangements
in the healthcare industry are also subject to extensive laws and
regulations intended to prevent fraud, kickbacks, self-dealing and
other abusive practices. These laws and regulations may restrict or
prohibit a wide range of pricing, discounting, marketing and
promotion, sales commission, customer incentive programs, patient
assistance programs, and other business arrangements. Medicare
Advantage and Medicaid managed care plan regulations prohibit
certain forms of marketing to enrollees that are designed to
discriminate against beneficiaries on the basis of their health
conditions or history. These regulations may require regulatory
review of marketing materials, and coordination with health plan or
governmental regulators. Additionally, the federal government has
pursued electronic health record (
EHR
) vendors and pharmaceutical
manufacturers for remunerative relationships involving the EHR
platform’s recommendation of particular drugs and
“prompting” technology to increase prescribing of
particular drugs.
The ACA
further created new federal requirements for reporting under the
Physician Payments Sunshine Act (the
Sunshine Act
) by applicable
manufacturers of covered drugs, payments and other transfers of
value to physicians and teaching hospitals, and ownership and
investment interests held by physicians and their immediate family
members. 2018 legislation extended the Sunshine Act to cover
payments and transfers of value to physician assistants, nurse
practitioners, and other mid-level practitioners (with reporting
requirements going into effect in 2022 for payments and transfers
of value made in 2021).
The
federal civil False Claims Act (
FCA
) prohibits, among other things, any
person or entity from knowingly presenting, or causing to be
presented, a false or fraudulent claim for payment to, or approval
by, the federal government, knowingly making, using, or causing to
be made or used a false record or statement material to a false or
fraudulent claim to the federal government, or avoiding,
decreasing, or concealing an obligation to pay money to the federal
government. A claim includes “any request or demand”
for money or property presented to the U.S. government. The civil
FCA has been used to assert liability on the basis of kickbacks and
other improper referrals, improperly reported government pricing
metrics such as Best Price or Average Manufacturer Price, or
submission of inaccurate information required by government
contracts, improper use of Medicare provider or supplier numbers
when detailing a provider of services, improper promotion of
off-label uses not expressly approved by the FDA in a drug’s
label, and allegations as to misrepresentations with respect to the
products supplied or services rendered. Several pharmaceutical and
other healthcare companies have further been sued under these laws
for allegedly providing free product to customers with the
expectation that the customers would bill federal programs for the
product. Intent to deceive is not required to establish liability
under the civil FCA; however, a November 2017 Department of Justice
memorandum now prohibits the use of subregulatory guidance
documents to impose new or more stringent requirements on entities
outside the Executive Branch of the federal government. Because the
Department has experienced recent administration changes, it is
unclear whether the new Attorney General will continue this policy.
Civil FCA actions may be brought by the government or may be
brought by private individuals on behalf of the government, called
“qui tam” actions. If the government decides to
intervene in a qui tam action and prevails in the lawsuit, the
individual will share in the proceeds from any fines or settlement
funds. If the government declines to intervene, the individual may
pursue the case alone, subject to governmental review and certain
approvals. Qui tam complaints are filed under seal, and the cases
may progress for a number of years before a complaint is unsealed
and a manufacturer becomes aware of its existence. Since 2004,
these FCA lawsuits against pharmaceutical companies have increased
significantly in volume and breadth, leading to several substantial
civil and criminal settlements, as much as $3.0 billion, regarding
certain sales practices and promoting off-label drug uses. For
example, civil FCA liability may be imposed for Medicare or
Medicaid overpayments arising out of claims that were filed by
providers but alleged to have been caused by manufacturers’
incentives, impermissible discounts, or overpayments caused by
understated rebate amounts. FCA enforcement may also arise from
claims filed as the result of manufacturing marketing materials
that contained inaccurate statements or provided certain
reimbursement guidance.
The
government may further prosecute conduct constituting a false claim
under the criminal FCA. The criminal FCA prohibits the making or
presenting of a claim to the government knowing such claim to be
false, fictitious, or fraudulent and, unlike the civil FCA,
requires proof of intent to submit a false claim.
-23-
Similarly,
the criminal healthcare fraud statutes impose criminal liability
for, among other things, knowingly and willfully attempting or
executing a scheme to defraud any healthcare benefit program,
including private third-party payors, obtaining money or property
of a benefit program by false or fraudulent means, or falsifying,
concealing, or covering up a material fact or submitting a
materially false statement in connection with the delivery of, or
payment from healthcare benefits, items, or services. These
statutes are not limited to items and services reimbursed by a
governmental health care program and have been used to prosecute
commercial insurance fraud as well.
The
civil monetary penalties statute is another potential statute under
which biopharmaceutical companies may be subject to enforcement.
Among other things, the civil monetary penalties statue imposes
fines against any person who is determined to have presented, or
caused to be presented, claims to a federal healthcare program that
the person knows, or should know, is for an item or service that
was not provided as claimed or is false or fraudulent.
The
exclusion statute requires the exclusion of entities and
individuals who have been convicted of federal- program related
crimes or health care felony fraud or controlled substance charges.
The statute also permits the exclusion of those that have been
convicted of any form of fraud, the anti-kickback statute, for
obstructing an investigation or audit, misdemeanor controlled
substance charges, those whose health care license has been revoked
or suspended, and those who have filed claims for excessive charges
or unnecessary services. If a company were to be excluded, its
products would be ineligible for reimbursement from any federal
programs, including Medicare and Medicaid, and no other entity
participating in those programs would be permitted to enter into
contracts with the company. Further, employment or contracting with
an individual or entity that has been excluded from participation
in federal healthcare programs could serve as a basis to invalidate
claims for items or services submitted by that entity and to
exclude that entity from participation in such programs as well. In
order to preserve access to beneficial drugs, the government may
elect to exclude officers and key employees of manufacturers,
rather than excluding the organization. Such enforcement actions
would prohibit the Company from engaging those individuals, which
could adversely affect operations, and could result in significant
reputational harm.
Payment
or reimbursement of prescription drugs by Medicaid or Medicare
requires manufacturers of the drugs to submit pricing information
to CMS. The Medicaid Drug Rebate statute requires manufacturers to
calculate and report price points, which are used to determine
Medicaid rebate payments shared between the states and the federal
government and Medicaid payment rates for certain drugs. For drugs
paid under Medicare Part B, manufacturers must also calculate and
report their Average Sales Price, which is used to determine the
Medicare Part B payment rate for the drug. Drugs that are approved
under a Biologic License Application (
BLA
) or an NDA, including 505(b)(2)
drugs, are subject to an additional inflation penalty which can
substantially increase rebate payments. In addition, for BLA and
NDA drugs, the Veterans Health Care Act (
VHCA
) requires manufacturers to
calculate and report to the VA a different price called the
Non‑Federal Average Manufacturing Price, which is used to
determine the maximum price that can be charged to certain federal
agencies, referred to as the Federal Ceiling Price, or FCP. Like
the Medicaid rebate amount, the FCP includes an inflation penalty.
A Department of Defense regulation requires manufacturers to
provide this discount through prescription rebates on drugs
dispensed by retail pharmacies when paid by the TRICARE Program.
All of these price reporting requirements create a risk of
submitting false information to the government resulting in
potential FCA liability.
The
VHCA also requires manufacturers of covered drugs participating in
the Medicaid program to enter into Federal Supply Schedule
contracts with the VA through which their covered drugs must be
sold to certain federal agencies at FCP and to report pricing
information. This necessitates compliance with applicable federal
procurement laws and regulations and subjects us to contractual
remedies as well as administrative, civil, and criminal sanctions.
In addition, the VHCA requires manufacturers participating in
Medicaid to agree to provide different mandatory discounts to
certain Public Health Service grantees and other safety net
hospitals and clinics under the 340B Drug Pricing Program and
report the ceiling price to the HRSA within Department of Health
and Human Services. Manufacturers can be audited by the HRSA and be
subjected to civil monetary penalties for knowingly and
intentionally overcharging covered entities for drugs.
The
federal Health Insurance Portability and Accountability Act of 1996
(
HIPAA
) also created
federal criminal statutes that prohibit knowingly and willfully
executing, or attempting to execute, a scheme to defraud or to
obtain, by means of false or fraudulent pretenses, representations,
or promises, any of the money or property owned by, or under the
custody or control of, a healthcare benefit program, regardless of
whether the payor is public or private, knowingly and willfully
embezzling or stealing from a health care benefit program,
willfully obstructing a criminal investigation of a health care
offense, and knowingly and willfully falsifying, concealing, or
covering up by any trick or device a material fact or making any
materially false statements in connection with the delivery of, or
payment for, healthcare benefits, items, or services relating to
healthcare matters. The ACA, as amended, modified the intent
requirement under the certain portions of these federal criminal
statutes such that a person or entity no longer needs to have
actual knowledge of the statute or specific intent to violate
it.
Further,
we may be subject to data privacy and security regulation by both
the federal government and the states in which we conduct our
business. HIPAA, as amended by the Health Information Technology
for Economic and Clinical Health Act (
HITECH
) and its respective implementing
regulations, extended certain requirements relating to the privacy,
security, and transmission of individually identifiable health
information directly to business associates of HIPAA-covered
entities. A business associate is defined as a person or
organization, other than a member of a covered entity’s
workforce, that performs certain functions or activities that
involve the use or disclosure of protected health information on
behalf of, or provides services to, a covered entity. We are not a
covered entity under HIPAA but in certain limited situations, we
may be considered a business associate. HITECH also strengthened
the civil and criminal penalties that may be imposed against
covered entities, business associates, and individuals, and gave
state attorneys general new authority to file civil actions for
damages or injunctions in federal courts to enforce the federal
HIPAA laws and seek attorneys’ fees and costs associated with
pursuing federal civil actions. In addition, other federal and
state laws may govern the privacy and security of health and other
information in certain circumstances, many of which differ from
each other in significant ways and may not have the same effect,
thus complicating compliance efforts.
-24-
Even
for entities that are not deemed “covered entities” or
“business associates” under HIPAA, according to the
United States Federal Trade Commission (
FTC
) failing to take appropriate steps
to keep consumers' personal information secure constitutes unfair
acts or practices in or affecting commerce in violation of Section
5(a) of the Federal Trade Commission Act (
FTCA
) 15 USC § 45(a). The FTC
expects a company's data security measures to be reasonable and
appropriate in light of the sensitivity and volume of consumer
information it holds, the size and complexity of its business, and
the cost of available tools to improve security and reduce
vulnerabilities. Medical data is considered sensitive data that
merits stronger safeguards. The FTC's guidance for appropriately
securing consumers' personal information is similar to what is
required by the HIPAA Security Rule. The FTC’s authority
under Section 5 is concurrent with HIPAA’s jurisdiction and
with any action taken under state law.
In
addition, other federal and state laws may govern the privacy and
security of health and other information in certain circumstances,
many of which differ from each other in significant ways and may
not have the same effect, thus complicating compliance efforts. For
example, California recently enacted legislation – the
California Consumer Privacy Act
(CCPA
) was made effective January 1,
2020. The CCPA, among other things, created new data privacy
obligations for covered companies and provided new privacy rights
to California residents, including the right to opt out of certain
disclosures of their information. The CCPA also created a private
right of action with statutory damages for certain data breaches,
thereby potentially increasing risks associated with a data breach.
The California Attorney General will issue clarifying regulations.
Although the law includes limited exceptions, including for certain
information collected as part of clinical trials as specified in
the law, it may regulate or impact our processing of personal
information depending on the context, and it remains unclear what
language the final Attorney General regulations will contain or how
the statute and the regulations will be interpreted.
Many
states have also adopted laws similar to each of the above federal
laws, which may be broader in scope and apply to items or services
reimbursed by any third‑party payor, including commercial
insurers, and some have transparency laws that require reporting
price increases and related information. Certain state laws also
regulate manufacturers’ use of prescriber‑identifiable
data. Certain states also require implementation of commercial
compliance programs and compliance with the pharmaceutical
industry’s voluntary compliance guidelines and the applicable
compliance guidance promulgated by the federal government, or
otherwise restrict payments or the provision of other items of
value that may be made to healthcare providers and other potential
referral sources; impose restrictions on marketing practices; or
require drug manufacturers to track and report information related
to payments, gifts, and other items of value to physicians and
other healthcare providers. These laws may affect our future sales,
marketing, and other promotional activities by imposing
administrative and compliance burdens.
Because
of the breadth of these laws and the narrowness of the statutory
exceptions and regulatory safe harbors available under such laws,
it is possible that certain business activities could be subject to
challenge under one or more of such laws. The scope and enforcement
of each of these laws is uncertain and subject to rapid change in
the current environment of healthcare reform, especially in light
of the lack of applicable precedent and regulations. Federal and
state enforcement bodies have recently increased their scrutiny of
interactions between pharmaceutical companies and providers and
patients, which has led to a number of investigations,
prosecutions, convictions and settlements in the healthcare
industry. Ensuring that business arrangements with third parties
comply with applicable healthcare laws, as well as responding to
possible investigations by government authorities, can be time- and
resource-consuming and can divert management’s attention from
the business, even if investigators ultimately find that no
violation has occurred.
If our
operations are found to be in violation of any of the laws or
regulations described above or any other laws that apply to us, we
may be subject penalties or other enforcement actions, including
criminal and significant civil monetary penalties, damages, fines,
disgorgement, imprisonment, exclusion from participation in
government healthcare programs, corporate integrity agreements,
debarment from receiving government contracts or refusal of new
orders under existing contracts, reputational harm, diminished
profits and future earnings, and the curtailment or restructuring
of our operations, any of which could adversely affect our ability
to operate our business and our results of operations.
To the
extent that any of our products are sold in a foreign country, we
may be subject to similar foreign laws and regulations, which may
include, for instance, applicable post‑marketing
requirements, including safety surveillance, anti‑fraud and
abuse laws, and implementation of corporate compliance programs and
reporting of payments or transfers of value to healthcare
professionals.
-25-
Coverage and Reimbursement Generally
The
commercial success of our product candidates and our ability to
commercialize any approved product candidates successfully will
depend in part on the extent to which governmental payor programs
at the federal and state levels, including Medicare and Medicaid,
private health insurers, and other third‑party payors provide
coverage for and establish adequate reimbursement levels for our
product candidates. Government authorities, private health
insurers, and other organizations generally decide which drugs they
will pay for and establish reimbursement levels and potential
access restrictions. Medicare is a federally funded program managed
by the Centers for Medicare and Medicaid Services (
CMS
) through local contractors that
administer coverage and reimbursement for certain healthcare items
and services furnished to the elderly and disabled. Medicaid is an
insurance program for certain categories of patients whose income
and assets fall below state‑defined levels and who are
otherwise uninsured that is both federally and state funded and
managed by each state. The federal government sets general
guidelines for Medicaid and each state creates specific regulations
that govern its individual program, including supplemental rebate
programs that prioritize coverage for drugs on the state Preferred
Drug List. Similarly, government laws and regulations establish the
parameters for coverage of prescription drugs by Tricare, the
health care program for military personnel, retirees, and related
beneficiaries. Many states have also created pharmacy assistance
programs for individuals who do not qualify for federal programs.
In the United States, private health insurers and other
third‑party payors often provide reimbursement for products
and services based on the level at which the government provides
reimbursement through the Medicare or Medicaid programs for such
products and services.
In the
U.S. and other potentially significant markets for our product
candidates, government authorities and third‑party payors are
increasingly attempting to limit or regulate the price of medical
products and services, particularly for new and innovative products
and therapies, which often has resulted in average selling prices
lower than they would otherwise be. For example, in the U.S.,
federal and state governments reimburse covered prescription drugs
at varying rates generally below average wholesale price.
Governmental and private payors may also establish certain access
restrictions, such as prior approvals or evidence of failure on
existing medications or therapies.
These
restrictions and limitations influence the purchase of healthcare
services and products. Third‑party payors are developing
increasingly sophisticated methods of controlling healthcare costs.
Third‑party payors may limit coverage to specific drug
products on an approved list, or formulary, which might not include
all of the FDA‑approved drug products for a particular
indication. Third‑party payors also control costs by
requiring prior authorization or imposing other dispensing
restrictions before covering certain products and by broadening
therapeutic classes to increase competition. Third‑party
payors are increasingly challenging the price and examining the
medical necessity and cost‑effectiveness of medical products
and services, in addition to their safety and efficacy. Absent
clinical differentiators, third‑party payors may treat
products as therapeutically equivalent and base formulary decisions
on net cost. To lower the prescription cost, manufacturers
frequently rebate a portion of the prescription price to the
third‑party payors.
Federal
programs also impose price controls through mandatory ceiling
prices on purchases by federal agencies and federally funded
hospitals and clinics and mandatory rebates on retail pharmacy
prescriptions paid by Medicaid and Tricare. These restrictions and
limitations influence the purchase of healthcare services and
products. Legislative proposals to reform healthcare or reduce
costs under government programs may result in lower reimbursement
for our product candidates or exclusion of our product candidates
from coverage. In addition, government programs like Medicaid
include substantial penalties for increasing commercial prices over
the rate of inflation which can affect realization and return on
investment.
Private
payors often rely on the lead of the governmental payors in
rendering coverage and reimbursement determinations. Therefore,
achieving favorable CMS coverage and reimbursement is usually a
significant gating issue for successful introduction of a new
product. In addition, many government programs as a condition of
participation mandate fixed discounts or rebates from manufacturers
regardless of formulary position or utilization, and then rely on
competition in the market to attain further price reductions, which
can greatly reduce realization on the sale.
Further,
the increased emphasis on managed healthcare in the U.S. and on
country and regional pricing and reimbursement controls in the
European Union will put additional pressure on product pricing,
reimbursement, and utilization, which may adversely affect our
future product sales and results of operations. These pressures can
arise from rules and practices of managed care groups and health
technology assessment bodies, competition within therapeutic
classes, availability of generic equivalents, judicial decisions
and governmental laws and regulations related to Medicare,
Medicaid, and healthcare reform, pharmaceutical coverage and
reimbursement policies, and pricing in general. Patients who are
prescribed treatments for their conditions and providers performing
the prescribed services generally rely on third‑party payors
to reimburse all or part of the associated healthcare costs. Sales
of our product candidates will therefore depend substantially, both
domestically and abroad, on the extent to which the costs of our
products will be paid by health maintenance, managed care, pharmacy
benefit and similar healthcare management organizations, or
reimbursed by government health administration authorities, such as
Medicare and Medicaid, private health insurers, and other
third‑party payors.
As a
result of the above, we may need to conduct expensive
pharmacoeconomic studies in order to demonstrate the medical
necessity and cost‑effectiveness of our products, in addition
to the costs required to obtain the FDA and other comparable
foreign regulatory authority approvals. Our product candidates may
not be considered medically necessary or cost‑effective, or
the rebate percentages required to secure coverage may not yield an
adequate margin over cost.
-26-
There
is often pressure to renegotiate pricing and reimbursement levels,
including, in particular, in connection with changes to Medicare.
Third-party payors continue to demand discounted fee structures,
and the trend toward consolidation among third-party payors tends
to increase their bargaining power over price structures. If
third-party payors reduce their rates for our products, then our
revenue and profitability may decline and our operating margins
will be reduced. Because some third-party payors rely on all or
portions of Medicare payment systems to determine payment rates,
changes to government healthcare programs that reduce payments
under these programs may negatively impact payments from
third-party payors. Our inability to maintain suitable financial
arrangements with third-party payors could have a material adverse
impact on our business. Additionally, the reimbursement process is
complex and can involve lengthy delays. Third party payors may
disallow, in whole or in part, providers’ requests for
reimbursement based on determinations that certain amounts are not
reimbursable under plan coverage, that the drugs provided were not
medically necessary, or that additional supporting documentation is
necessary. Retroactive adjustments may change amounts realized from
third party payors. Delays and uncertainties in the reimbursement
process may adversely affect market acceptance and utilization of
our products, resulting in reduced revenues. The unavailability or
inadequacy of third-party coverage and reimbursement could
negatively affect the market acceptance of our products and the
future revenues we may expect to receive from those products. In
addition, we are unable to predict what additional legislation or
regulation relating to the healthcare industry or third-party
coverage and reimbursement may be enacted in the future, or what
effect such legislation or regulation would have on our business.
Many hospitals implement a controlled and defined process for
developing and approving formularies. Any marketing efforts that
are determined to have violated such policies could result in the
denial or removal of our products from that hospital’s
formulary.
Moreover,
a payor’s decision to provide coverage for a drug product
does not imply that an adequate reimbursement rate will be
approved. Adequate third‑party reimbursement may not be
available to enable us to maintain price levels sufficient to
realize an appropriate return on our investment in drug
development. Legislative proposals to reform healthcare or reduce
costs under government insurance programs may result in lower
reimbursement for our products and product candidates or exclusion
of our products and product candidates from coverage. The cost
containment measures that healthcare payors and providers are
instituting and any healthcare reform could significantly reduce
our revenues from the sale of any approved product candidates. We
cannot provide any assurances that we will be able to obtain and
maintain third‑party coverage or adequate reimbursement for
our product candidates in whole or in part.
Pharmacy
benefit managers (
PBM
)
rebates and pricing transparency are key areas of legislative and
regulatory focus and there may be changes in the regulatory
landscape that could have a significant impact on the
pharmaceutical supply chain and drug pricing more generally, which
could affect our business operations and prospects in unknown and
material ways.
Healthcare Reform Measures
The
U.S. and some foreign jurisdictions are considering or have enacted
a number of legislative and regulatory proposals designed to change
the healthcare system in ways that could affect our ability to sell
our products profitably. Among policy makers and payors in the
United States and elsewhere, there is significant interest in
promoting changes in healthcare systems with the stated goals of
containing healthcare costs, improving quality, and expanding
access. In the United States, the pharmaceutical industry has been
a particular focus of these efforts and has been significantly
affected by major legislative initiatives.
For
example, the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (
MMA
) established a prescription drug
benefit program for Medicare beneficiaries. Under Part D, Medicare
beneficiaries may enroll in prescription drug plans offered by
private entities that provide coverage of outpatient prescription
drugs. Part D plans include both standalone prescription drug
benefit plans and prescription drug coverage as a supplement to
Medicare Advantage plans. Unlike Medicare Part A and B, which do
not utilize formularies to restrict coverage, Part D coverage
varies by plan. With some exceptions, Part D prescription drug plan
sponsors are not required to pay for all covered Part D drugs, and
each drug plan can develop its own drug formulary that identifies
which drugs it will cover and at what tier or level. However, Part
D prescription drug formularies must include drugs within each
therapeutic category and class of covered Part D drugs, though not
necessarily all the drugs in each category or class. Any formulary
used by a Part D prescription drug plan must be developed and
reviewed by a pharmacy and therapeutic committee. Government
payment for some of the costs of prescription drugs may increase
demand for any products for which we receive marketing approval.
However, Part D plans use competition for coverage to leverage
manufacturer rebates. Further, the law requires manufacturers to
absorb a significant percentage of the prescription price paid for
NDA drugs, including 504(b)(2) drugs, during a beneficiary’s
coverage gap. The Bipartisan Budget Act of 2018 permanently
increased manufacturer liability for the prescription price in the
coverage gap from 50% to 70% beginning in 2019, while
simultaneously accelerating closure of the gap. These cost
reduction initiatives and other provisions of the legislation, as
well as any negotiated price discounts for our future products
covered by a Part D prescription drug plan, may decrease the
coverage and reimbursement rate that we receive, lower the net
price realized on our sales to pharmacies, or both. Moreover, while
the MMA applies only to drug benefits for Medicare beneficiaries,
private payors often follow Medicare coverage policy and payment
limitations in setting their own payment rates. Any reduction in
payment that results from Medicare Part D may result in a similar
reduction in payments from non‑governmental
payors.
The ACA
established the Patient-Centered Outcome Research Institute to
organize and coordinate federally funded research to compare the
effectiveness of different treatments for the same illness.
Although the results of the comparative effectiveness studies are
not intended to mandate coverage policies for public or private
payors, it is not clear what effect, if any, the research will have
on the sales of any product, if any such product or the condition
that it is intended to treat is the subject of a study. It is also
possible that comparative effectiveness research demonstrating
benefits in a competitor’s product could adversely affect the
sales of our product candidates. If third‑party payors do not
consider our product candidates to be cost‑effective compared
to other available therapies, they may not cover our product
candidates, once approved, 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.
-27-
The ACA
made other changes intended to broaden access to health insurance,
reduce or constrain the growth of healthcare spending, enhance
remedies against fraud and abuse, add new transparency requirements
for healthcare and health insurance industries, impose new taxes
and fees on the health care industry, and impose additional health
policy reforms. The law expanded the eligibility criteria for
Medicaid programs, thereby potentially increasing both the volume
of sales and manufacturers’ Medicaid rebate liability. The
law also expanded the entities eligible for discounts under the
340B Drug Discount Program, which mandates discounts to certain
hospitals, community centers, and other qualifying providers,
although, with the exception of children’s hospitals, these
newly eligible entities are not eligible to receive discounted 340B
pricing on orphan drugs and the Health Resources and Services
Administration has narrowed its interpretation of which
beneficiaries may fill prescriptions through 340B inventories. The
law additionally extended manufacturer’s Medicaid rebate
liability to covered drugs dispensed to patients enrolled in
Medicaid managed care organizations, increased the statutory
minimum rebates a manufacturer must pay under the Medicaid Drug
Rebate program, and created an alternative rebate formula for
certain new formulations of certain existing products, which is
intended to increase the amount of rebates due on those drugs. The
revisions to the Medicaid rebate formula can have the further
effect of increasing the required 340B discounts. Finally, the ACA
imposes a significant annual fee on companies that manufacture or
import branded prescription drug products. Substantial new
provisions affecting compliance have also been enacted through the
ACA and otherwise, including the reporting of drug sample
distribution, which may require us to modify our business practices
with healthcare practitioners. Moreover, in the coming years,
additional changes could be made to governmental healthcare
programs that could significantly impact the success of our product
candidates.
The ACA
also imposed an affirmative obligation to report and repay any
overpayments, including those payments that resulted from
violations of the Anti-Kickback Statute, false claims act, or civil
monetary penalties statute, within sixty (60) days after such
overpayment has been identified. Corresponding case law imposes an
obligation on entities to exercise reasonable diligence in
identifying such overpayments. The failure to timely report and
repay is, itself, considered to constitute a violation of the False
Claims Act.
The
cost of pharmaceuticals continues to generate substantial
governmental and third-party payor interest, and pharmaceutical
pricing and marketing currently received a great deal of
Congressional and administrative attention. There have been
numerous initiatives on the federal and state levels in the United
States for comprehensive reforms affecting the payment for, the
availability of, and reimbursement for, healthcare services. In
particular, there have been a number of federal and state proposals
during the last few years regarding the pricing of pharmaceutical
and biopharmaceutical products, limiting coverage and reimbursement
for drugs and other medical products, government control and other
changes to the healthcare system in the United States.
Congressional inquiries and proposed and enacted federal and state
legislation have also been released and are designed to, among
other things, bring more transparency to drug pricing, reduce the
cost of prescription drugs under Medicare, review the relationship
between pricing and manufacturer patient programs and reform
government program reimbursement methodologies for drugs. Recent
federal budget proposals have included measures to permit Medicare
Part D plans to negotiate the price of certain drugs under Medicare
Part B, to allow some states to negotiate drug prices under
Medicaid, and to eliminate cost sharing for generic drugs for
low-income patients. Current and future U.S. legislative healthcare
reforms may result in price controls and other restrictions for any
approved products, if covered, and could seriously harm our
business. Drug pricing is and will remain a key bipartisan issue in
the coming year. Drug pricing reform policies may be pursued in the
future and may be more aggressive, regardless of which party
controls the White House. Given that drug pricing controls is a key
legislative and administration priority, it is likely that
additional pricing controls will be enacted and could harm our
business, financial condition and results of operations. At the
state level, legislatures have increasingly passed legislation and
implemented regulations designed to control pharmaceutical and
biological product pricing, including price or patient
reimbursement constraints, discounts, restrictions on certain
product access and marketing cost disclosure and transparency
measures, and, in some cases, designed to encourage importation
from other countries and bulk purchasing. Some states, such as
California, have enacted transparency laws that require
manufacturers to report drug price increases and related
information. The boom in state laws targeting drug pricing is
unprecedented and the requirements are not uniform from state to
state, creating additional compliance and commercialization
challenges for manufacturers. We further expect that the
pharmaceutical industry will experience pricing pressures due to
the trend toward managed healthcare, the increasing influence of
managed care organizations, judicial interpretation of health care
reform efforts, and additional legislative and regulatory proposals
resulting in ongoing, relatively rapid changes to applicable laws
and regulations. Our results of operations could be adversely
affected by current and future healthcare reforms.
Government
and private payors also increasingly require pre‑approval of
coverage for new or innovative devices or drug therapies or
condition coverage on unsuccessful alternative treatment before
they will reimburse healthcare providers that use such therapies.
For some specialty drugs, payors are conditioning payment on
successful treatment measured by objective metrics. While we cannot
predict whether any proposed cost‑containment measures will
be adopted or otherwise implemented in the future, the announcement
or adoption of these proposals could have a material adverse effect
on our ability to obtain adequate prices for our product candidates
and operate profitably.
Congress and the former Trump Administration, from 2017 –
2020, engaged in various efforts to repeal or materially modify
various aspects of ACA. The results and effects of such ongoing
efforts were varied after facing judicial and Congressional
challenges, but could affect our business operations and prospects
in unknown ways, and it is unclear how ACA and other laws
ultimately will be implemented. For example, in the case of Texas
v. Azar, a federal district court in Texas struck down the ACA in
its entirety, finding that the Tax Cuts and Jobs Act of 2017
rendered the individual mandate unconstitutional. The December 15,
2019 opinion concluded that since the individual mandate is
“essential” to the ACA, it could not be severed from
the rest of the ACA and therefore, the entire ACA was
unconstitutional. Despite its decision, however, the court did not
issue an injunction and therefore, immediate compliance was not
required. Following appeal of the Fifth Circuit’s decision
upholding the ruling of the federal district court, on June 17,
2021, the Supreme Court reversed the decision of the Fifth Circuit
and remanded the case back to the lower court with instructions to
dismiss the case.
-28-
Despite the Supreme Court’s recent ruling in California v.
Texas (formerly Texas v. Azar), it remains unclear how future
decisions from the Supreme Court and the various other courts
across the country, if any, to repeal and replace the ACA will
impact the ACA and our business. It is also unclear how regulations
and sub-regulatory policy, which fluctuate continually, may affect
interpretation and implementation of the ACA and its practical
effects on our business.
In the future, there may continue to be additional proposals
relating to the reform of the U.S. healthcare system, some of which
could further limit the prices we will be able to charge for our
product candidates, or the amounts of reimbursement available for
our product candidates. If future legislation were to impose direct
governmental price controls or access restrictions, it could have a
significant adverse impact on our business. Additionally, with the
change in administration it is possible that President Biden may
issue Executive Orders with the potential to change a number of
prior executive branch actions on drug pricing. We continue to
monitor the potential impact of proposals to lower prescription
drug costs at the federal and state level. Managed care
organizations, as well as Medicaid and other government agencies,
continue to seek price discounts. Some states have implemented, and
other states are considering, measures to reduce costs of the
Medicaid program, and some states are considering implementing
measures that would apply to broader segments of their populations
that are not Medicaid-eligible. Due to the volatility in the
current economic and market dynamics, we are unable to predict the
impact of any unforeseen or unknown legislative, regulatory, payor
or policy actions, which may include cost containment and
healthcare reform measures. Such policy actions could have a
material adverse impact on our profitability.
These
and other healthcare reform initiatives may result in additional
reductions in Medicare and other healthcare funding, which could
have a material adverse effect on our financial operations. We
expect that additional state and 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, which could result in reduced demand for our product
candidates or additional pricing pressures.
The Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act
(
FCPA
) prohibits any U.S. individual or business from
paying, offering, or authorizing payment or offering of anything of
value, directly or indirectly, to any foreign official, political
party, or candidate for the purpose of influencing any act or
decision of the foreign entity in order to assist the individual or
business in obtaining or retaining business. The FCPA has been
applied to the marketing of drugs and the conduct of clinical
trials outside the United States. The FCPA also obligates companies
whose securities are listed in the United States to comply with
accounting provisions requiring the company to maintain books and
records that accurately and fairly reflect all transactions of the
corporation, including international subsidiaries, and to devise
and maintain an adequate system of internal accounting controls for
international operations. Activities that violate the FCPA, even if
they occur wholly outside the United States, can result in criminal
and civil fines, imprisonment, disgorgement, oversight, and
debarment from government contracts.
Foreign Regulation
To the
extent we choose to develop or sell any products outside of the
U.S., we will be subject to a variety of foreign regulatory
requirements of other countries regarding safety and efficacy and
governing, among other things, clinical trials, marketing
authorization, commercial sales, and distribution of our products.
For example, in the European Union (
EU
) we must obtain authorization of a
clinical trial application in each member state in which we intend
to conduct a clinical trial prior to the pending introduction of a
EU portal for EU-wide approvals. Whether or not we obtain FDA
approval for a product, we would need to obtain the necessary
approvals by the comparable regulatory authorities of foreign
countries before we can commence clinical trials or marketing of
the product in those countries. The approval process varies from
country to country and can involve additional product testing and
additional administrative review periods. The time required to
obtain approval in other countries might differ from and be longer
than that required to obtain FDA approval. The requirements
governing the conduct of clinical trials, product licensing,
pricing, and reimbursement vary greatly from country to country.
Regulatory approval in one country does not ensure regulatory
approval in another, but a failure or delay in obtaining regulatory
approval in one country may negatively impact the regulatory
process in others. As in the U.S., post‑approval regulatory
requirements, such as those regarding product manufacture,
marketing, or distribution, would apply to any product that is
approved outside the U.S.
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.
-29-
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, 2021. 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
).
Research and Development
Conducting
research and development is central to our business model. We have
invested and expect to continue to invest significant time and
capital in our research and development operations. Our research
and development expenses were $12.5 million and $13.4 million for
the fiscal years ended March 31, 2021 and 2020, respectively. We
plan to increase our research and development expenses for the
foreseeable future as we seek to complete the development of PH94B,
PH10 and AV-101.
Employees
As
of June 29, 2021, we employed 21 full-time employees, nine females
and 12 males. Ten of our employees have doctorate degrees. Thirteen
full-time employees work in research and development and laboratory
support services and eight full-time employees work in business
development, commercialization and general and administrative
roles. Staffing for other functional areas is achieved through our
diverse network of strategic relationships with multiple CROs,
CDMOs, and other third-party service providers and consultants.
These service providers and consultants provide us with support
services on a flexible, real-time, as-needed basis, including
services related to, among others, payroll, information technology,
legal, investor and public relations, manufacturing, product
development, 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 which also
provides a five-year option to renew.
Legal Proceedings
None.
Environmental Regulation
Our business does not require us to comply with any extraordinary
environmental regulations.
Available Information
We file
reports and other information with the SEC, as required by the
Exchange Act. We make available free of charge through our website
(
http://www.vistagen.com
)
our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports filed
or furnished pursuant to Sections 13(a) and 15(d) of the Exchange
Act. We make these reports available through our website as soon as
reasonably practicable after we electronically file such reports
with, or furnish such reports to, the SEC. In addition, we
regularly use our website to post information regarding our
business, product development programs and governance, and we
encourage investors to use our website, particularly the
information in the section entitled “Investors,” as a
source of information about us. The foregoing references to our
website are not intended to, nor shall they be deemed to,
incorporate information on our website into this Annual Report on
Form 10-K by reference.
-30-
Risk Factor Summary
Our business is subject to substantial risk and an investment in
our securities involves various risks. Some of the material risks
include those set forth below. You should consider carefully these
risks, and those discussed under “Risk Factors” below,
before investing in our securities. These risks include, among
others:
|
●
|
the COVID-19 pandemic has, and continues to have, an impact on our
business, including delays in manufacturing of certain drug
substance and drug products and potential delays in recruitment and
enrollment in the PALISADE Phase 3 clinical program and other
planned clinical studies of PH94B;
|
|
●
|
we are a development stage biopharmaceutical company with no
recurring revenues from product sales or approved products, and
limited experience developing or commercializing new drug
candidates, which makes it difficult to assess our future
viability;
|
|
●
|
we depend heavily on the success of our three CNS product
candidates PH94B, PH10 and AV-101, and we cannot be certain that we
will be able to obtain regulatory approval for, or successfully
commercialize, any of our current or future product
candidates;
|
|
●
|
failures or delays in the commencement or completion of our planned
clinical trials, including, among others, clinical studies in our
PALISADE Phase 3 program, could delay, prevent or limit our ability
to generate revenue and continue our business;
|
|
●
|
we face significant competition, and if we are unable to compete
effectively, we may not be able to achieve or maintain significant
market penetration or improve our results of
operations;
|
|
●
|
if we are unable to adequately protect our proprietary technology,
or obtain and maintain issued patents that are sufficient to
protect our product candidates, others could compete against us
more directly, which would have a material adverse impact on our
business, results of operations, financial condition and
prospects;
|
|
●
|
we have incurred significant net losses since inception and we will
continue to incur substantial operating losses for the foreseeable
future;
|
|
●
|
although we are taking steps to mitigate them, 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 require additional financing to execute our long-term business
plan, including further development and commercialization of our
CNS pipeline, and to continue to operate as a going
concern;
|
|
●
|
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;
and
|
|
●
|
other risks and uncertainties, including those described
under “
Risk
Factors
”
below.
|
If we are unable to effectively manage the impact of these and
other risks, our ability to operate and execute our business plan
would be substantially impaired. In turn, the value of our
securities would be materially reduced.
-31-
Risk Factors
You should consider carefully the risks and uncertainties described
below, together with all of the 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
results of operations could be materially and adversely
affected.
The COVID-19 pandemic has adversely impacted, and may continue to
adversely impact our business.
Beginning in late 2019, a new strain of coronavirus
(
COVID-19
) spread across the world, and the outbreak has
since been declared a pandemic by the World Health Organization.
The U.S. Secretary of Health and Human Services has also declared a
public health emergency in the United States in response to the
outbreak. Considerable uncertainty still surrounds COVID-19 and its
potential effects, and the extent of and effectiveness of responses
taken on international, national and local levels. Measures taken
to limit the impact of COVID-19, including shelter-in-place orders,
social distancing measures, travel bans and restrictions, and
business and government shutdowns resulted in significant negative
economic impacts on a global basis.
Although the negative effects of the COVID-19 pandemic appear to be
lessening, we cannot at this time accurately predict the effects of
these conditions on our operations. Uncertainties remain as to the
duration of the pandemic, the success of treatments and vaccines
designed to combat the pandemic, and the length and scope of the
travel restrictions and business closures imposed by the
governments of impacted countries and localities. The continued
COVID-19 pandemic, the spread of variants of the COVID-19 virus or
another highly transmissible and pathogenic infectious disease may
lead to the implementation of further responses, including
additional travel restrictions, government-imposed quarantines or
stay-at-home orders, and other public health safety measures, which
may result in further disruptions to our business and operations.
The COVID-19 pandemic has impacted our business and may continue to
do so as the pandemic persists. Additionally, future outbreaks may
have several adverse effects on our business, results of operations
and financial condition.
|
●
|
Delayed product development:
We have faced, and may continue
to face, delays and other disruptions to our ongoing development
programs for PH94B, PH10 and AV-101 due to the ongoing COVID-19
pandemic. In addition, regulatory oversight and actions regarding
our products may be disrupted or delayed in regions impacted by
COVID-19, including the United States and elsewhere, which may
impact review and approval timelines for products in development.
Although we remain invested in continuing our development programs
for our current product candidates, our research and development
efforts may be impacted if our employees, our contract research
organizations (
CROs
) and
our third-party contract manufacturer(s) (
CMOs
) are advised to continue to work
remotely as part of social distancing measures. Additionally,
social distancing measures, stay-at-home orders and other
governmental restrictions designed to combat the COVID-19 pandemic
may impair our ability to conduct studies in our PALISADE
Phase 3 program for PH94B in a timely manner.
|
|
●
|
Negative impacts on our suppliers and employees
: COVID-19
has impacted, and COVID-19, variants of COVID-19 or another highly
transmissible and pathogenic infectious disease, may impact or
continue to impact the health of our employees, contractors or
suppliers, reduce the availability of our workforce or those of
companies with which we do business, divert our attention toward
succession planning, or create disruptions in our supply or
distribution networks. Since the beginning of the COVID-19
pandemic, we have experienced delays of the delivery of supplies of
active pharmaceutical product (
API
) required to continue development
of PH94B and PH10. Although our supply of raw materials and API
remains sufficiently operational, we may experience adverse effects
of such events, which may result in a significant, material
disruption to clinical development programs and our operations.
Additionally, having substantially shifted to remote working
arrangements, we also face a heightened risk of cybersecurity
attacks or data security incidents and are more dependent on
internet and telecommunications access and
capabilities.
|
COVID-19 has also created significant disruption and volatility in
national, regional and local economies and markets. Uncertainties
related to, and perceived or experienced negative effects from
COVID-19, may cause significant volatility or decline in the
trading price of our securities, capital markets conditions and
general economic conditions. Our future results of operations and
liquidity could be adversely impacted by supply chain disruptions
and operational challenges faced by our CROs, CMOs and other
contractors. The ongoing COVID-19 pandemic, or another highly
transmissible and pathogenic infectious disease,
could result in a widespread health
crisis that could adversely affect the economies and financial
markets of many countries, resulting in a further economic downturn
or a global recession. Such events may limit or restrict our
ability to access capital on favorable terms, or at all, lead to
consolidation that negatively impacts our business, weaken demand,
increase competition, cause us to reduce our capital spend further,
or otherwise disrupt our business or make it more difficult to
implement our strategic plans.
Risks Related to Product Development, Regulatory Approval and
Commercialization
We depend heavily on the success of one or more of our current CNS
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,
manufacturing, regulatory approval and commercialization of one or
more of our current CNS 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 CNS drug candidates will require substantial additional
nonclinical and clinical development, manufacturing 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 new chemical entity (
NCE
) we may produce through drug rescue activities
will require substantial nonclinical development, all phases of
clinical development, manufacturing 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 or our collaborators
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.
-32-
We are not permitted to market our product candidates in the U.S.
until we receive approval of a New Drug Application
(
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
Risk Evaluation and Mitigation Strategies (
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. Although we do not contemplate
doing so, 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. In the U.S.,
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 PH94B for the treatment of social anxiety disorder
(SAD) and AV-101 for the adjunctive treatment of major depressive
disorder (MDD) and for the treatment of neuropathic pain (NP).
However, these designations may not actually lead to faster
development or regulatory review or approval processes for PH94B or
AV-101. Further, there is no guarantee the FDA will grant Fast
Track designation for PH94B or 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.
-33-
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. In December 2019,
the FDA granted Fast Track designation for development of PH94B for
the treatment of SAD. However, these FDA Fast Track designations
may not lead to a faster development or regulatory review or
approval process for PH94B or AV-101 and the FDA may withdraw Fast
Track designation of PH94B or AV-101 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 PH94B,
PH10 and AV-101 as a treatment option for other CNS indications.
The FDA has broad discretion whether or not to grant a Fast Track
designation, and even if we believe PH94B, PH10, AV-101 or other
product candidates may be eligible for this designation, we cannot
be sure that the FDA will grant it.
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
PH94B, PH10, AV-101 and/or our other future product candidates, if
any, including positive results, may not be predictive of the
results of later-stage clinical trials. PH94B, PH10, AV-101 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 later-stage 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 or approval from a similar regulatory authority
in another country. With respect to our current product candidates,
if our PALISADE Phase 3 program, including the PALISADE-1 Phase 3
clinical study of PH94B for acute treatment of anxiety in adults
with SAD, any future nonclinical or clinical study of PH94B, PH10
or AV-101 fail(s) to produce positive results, the development
timeline and regulatory approval and commercialization prospects
for PH94B, PH10 or AV-101 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 have been
affected by supply chain disruptions experienced by certain of our
CMOs as a result of the ongoing COVID-19 pandemic. In addition,
clinical development of our products may be further 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. In addition, health and safety
precautions at clinical sites related to the COVID-19 pandemic
could cause us to incur additional costs or delay initiation or
completion of planned nonclinical and clinical trials.
If serious adverse events or other undesirable side effects or
safety concerns attributable to our product candidates occur,
including PH94B in the PALISADE Phase 3 program, they may adversely
affect or delay our clinical development and commercialization of
PH94B, PH10 or AV-101.
Undesirable side effects or safety concerns caused by our product
candidates could cause us or regulatory authorities to interrupt,
delay or halt our clinical trials and could result in a more
restrictive label or the delay or denial of regulatory
approval. Although no treatment-related serious adverse events
(
SAEs
) were observed in any clinical trials of any of
our product candidates to date, if treatment-related SAEs or other
undesirable side effects or safety concerns, or unexpected
characteristics attributable to PH94B, PH10 and/or AV-101, are
observed in any future clinical trials, including clinical studies
in the PALISADE Phase 3 program, and/or other clinical trials
involving our drug candidates, they may adversely affect or delay
our clinical development and commercialization of the effected
product candidate, 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.
-34-
Additionally, if any of our product candidates receives marketing
approval and we or others later identify undesirable or
unacceptable side effects or safety concerns 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 or REMS-like 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
nonclinical and clinical studies of PH94B, PH10, AV-101 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.
In addition to the PALISADE-1 Phase 3 clinical study, we will need
to complete at least one additional Phase 3 clinical study of
PH94B, additional toxicology and other standard nonclinical and
clinical safety studies, as well as certain other clinical studies
prior to our submission of an NDA for regulatory approval of PH94B
as an acute treatment of anxiety in adults with SAD, or for any
other anxiety disorder or phobia. For PH10, at present, we believe
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 a
stand-alone rapid-onset treatment for MDD, or any other depression
disorder. For AV-101 in combination with probenecid, at present,
for treatment of any CNS indication, we believe we will need to
complete at least one Phase 1B clinical study, two Phase 2 clinical
studies, 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. 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. We do not know whether any of our future-planned
nonclinical and clinical trials of PH94B, PH10, AV-101 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:
|
●
|
delays due to events resulting from the ongoing COVID-19
pandemic;
|
|
●
|
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;
|
-35-
|
●
|
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 PH94B, PH10, AV-101 or other CNS 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 PH94B,
PH10, AV-101 or other CNS 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 PH94B, PH10, AV-101
or other CNS 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 CNS
product candidates and will continue to do so for any other future
CNS 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
PH94B, PH10, AV-101 or other CNS future product candidates may be
delayed and we may not be able to obtain regulatory approval for or
commercialize PH94B, PH10, AV-101 or other future CNS product
candidates and our business could be substantially
harmed.
-36-
By strategic design, we do not have the extensive internal staff
resources to independently conduct nonclinical and clinical trials
of our product candidates completely on our own. We rely on our
network of strategic relationships with various academic research
centers, medical institutions, nonclinical and clinical
investigators, contract laboratories, CROs and other third parties
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. CROs and other outside
parties may:
|
●
|
experience disruptions to their operations, such as reduced
staffing and supply chain disruptions, as a result of the ongoing
COVID-19 pandemic;
|
|
●
|
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, or independent investigators does not relieve
us of our regulatory responsibilities. We and our CROs, 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, 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.
-37-
We rely completely on third-parties to manufacture, formulate,
analyze, hold and distribute supplies of our CNS 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 CNS product candidates in the
future.
By strategic design, we do not currently have, nor do we plan to
acquire or develop, extensive internal infrastructure or technical
capabilities to manufacture, formulate, analyze, 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 PH94B, PH10 and AV-101 API and
formulate PH94B, PH10 and AV-101 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, analysis 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 PH94B, PH10 and AV-101 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 PH94B, PH10 and AV-101 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 PH94B,
PH10 and AV-101 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 PH94B, PH10 and AV-101, we do not yet have
long-term supply agreements in place with our CMOs and each batch
of PH94B, PH10 and AV-101 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 PH94B, PH10 and AV-101 API and finished drug
product will be adequate to support our planned nonclinical and
clinical studies of PH94B, PH10 and AV-101, no assurance can be
given that unanticipated supply shortages or CMO-related delays in
the manufacture and formulation of PH94B, PH10 or AV-101 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 and 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.
-38-
Even if we receive marketing approval for PH94B, PH10, AV-101 or
any other CNS product candidate in the U.S., we may never receive
regulatory approval to market PH94B, PH10, AV-101 or any other CNS
product candidate outside of the U.S.
In order to market PH94B, PH10, AV-101 or any other CNS 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 CNS 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 PH94B, PH10 and AV-101 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 broad sales and marketing
capabilities on our own or enter into agreements with third parties
to market and sell our CNS product candidates, we may not be able
to generate any revenue.
We currently have limited internal resources for the sale,
marketing and distribution of pharmaceutical products, and we may
not be able to create broad internal capabilities in the
foreseeable future. Therefore, to market our CNS product
candidates, if approved by the FDA or any other regulatory body, we
must establish broad internal capabilities related to sales,
marketing, managerial and other non-technical capabilities relating
to the commercialization of our product candidates, or make
contractual arrangements with third parties to perform services,
prior to market approval. If we are unable to establish adequate
internal sales, marketing and distribution capabilities, or if we
are unable to do so contractually on commercially reasonable terms,
our business, results of operations, financial condition and
prospects will be materially adversely affected.
-39-
Even if we receive marketing approval for our CNS 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 CNS product candidates, if approved
by the FDA or other 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.
|
-40-
If our CNS 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 CNS 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.
If our product candidates are determined to cause undesirable side
effects and safety concerns, we or regulatory authorities may
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 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.
|
-41-
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 CNS product
candidates, we may still face future development and regulatory
difficulties.
Even if we receive marketing approval for our CNS 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 CNS 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 in the
future.
Currently, management is unaware of any FDA-approved rapid-onset,
acute treatment of anxiety in adults with SAD having the same
mechanism of pharmacological action and safety profile as our
PH94B. Also, management is currently unaware of any FDA-approved
oral treatment for MDD having the same mechanism of pharmacological
action and safety profile as our intranasally-administered PH10 or
our orally-administered AV-101 in combination with probenecid.
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 for treatment
of MDD, as well as other CNS indications for which PH10 or AV-101
in combination with probenecid 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.
-42-
With respect to PH94B and current treatment options for SAD in the
U.S., our competition may include, but is not limited to, current
generic oral antidepressants approved by the FDA for treatment of
SAD, as well as certain classes of drugs prescribed on an off-label
basis for treatment of SAD, including benzodiazepines such as
alprazolam, and beta blockers such as propranolol. In the field of
new generation, oral treatments for adult patients with MDD, we
believe our principal competitors may be Axsome, Alkermes, Relmada
and Sage. 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 esketamine.
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 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. With
respect to PH10 and AV-101 in combination with probenecid for
treatment of depression disorders, including MDD, and AV-101 in
combination with probenecid for treatment of certain neurological
disorders, including levodopa-induced dyskinesia associated with
therapy for Parkinson’s disease, neuropathic pain, and
epilepsy, we believe a range of pharmaceutical and biotechnology
companies have programs to develop drug candidates and/or medical
device technologies for such indications, including, but not
limited to, Abbott Laboratories, Acadia, Allergan, Alkermes,
Aptynix, AstraZeneca, Axsome, Eli Lilly, GlaxoSmithKline,
IntraCellular, Janssen, Lundbeck, Merck, Neurocrine, Novartis, Ono,
Otsuka, Pfizer, Relmada, Roche, Sage, Sumitomo Dainippon, and
Takeda, as well as any affiliates of the foregoing
companies. 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, such as the License and Collaboration Agreement we
entered into with AffaMed Therapeutics (formerly EverInsight
Therapeutics) in June 2020 for the development and
commercialization of PH94B in Greater China, South Korea and
Southeast Asia.
We may derive revenue from research and development fees, license
fees, milestone payments and royalties under any collaborative
arrangement into which we enter, including the AffaMed Agreement.
However, our ability to generate revenue from such arrangements
will depend on our collaborators’ abilities to successfully
perform the functions assigned to them in these arrangements. In
addition, our collaborators have the right to abandon research or
development projects and terminate applicable agreements, including
funding obligations, prior to or upon the expiration of the agreed
upon terms. As a result, we can expect to relinquish some or all of
the control over the future success of a product candidate that we
license to a third party in the territories included in the
licenses.
We face significant competition in seeking appropriate
collaborators. Whether we reach additional definitive agreements
for collaborations 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.
-43-
We may not be able to negotiate additional 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 CNS 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 CNS product candidates with
commercial and therapeutic potential. We may fail to pursue
additional development opportunities for PH94B, PH10 or AV-101, or
identify additional CNS product candidates for development and
commercialization 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.
We strategically focus on a limited number of research and
development programs and product candidates and are currently
focused primarily on development of PH94B, PH10 and AV-101. As a
result, we may forego or delay pursuit of opportunities with other
product candidates or for other potential CNS-related indications
for PH94B, PH10 and/or AV-101 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 CNS 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.
|
-44-
|
●
|
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 PH94B, PH10 and AV-101, 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 PH94B as an acute treatment of anxiety in
adults with SAD, physicians may prescribe PH94B 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 CNS 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.
-45-
We may seek FDA Orphan Drug designation for one or more of our CNS
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 CNS 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 such as our
collaboration with AffaMed to develop and commercialize PH94B in
key Asian markets. 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.
-46-
We are a development stage biopharmaceutical company with no
recurring revenues from product sales 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. We currently
have no approved products and no recurring revenues from product
sales, 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
or continue to accomplish the following fundamental objectives,
either on our own or with collaborators:
|
●
|
develop and obtain required regulatory approvals for
commercialization of PH94B, PH10, AV-101 and/or other CNS 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 CNS
product candidates, acquire or license additional CNS product
candidates, and we cannot provide any assurance that we will
successfully develop and commercialize PH94B, PH10, AV-101 or
acquire or license additional CNS product candidates, or that, if
produced, PH94B, PH10, AV-101 or any other CNS product candidate
will be successfully commercialized.
Business
development and research and development programs designed to
identify, acquire or license additional product candidates require
substantial technical, financial and human resources, whether or
not any additional CNS product candidate is acquired or
licensed.
We
are in the beginning stages of building a sales and marketing
infrastructure, including hiring certain executive officers and
other employees that have pharmaceutical sales, marketing or
distribution experience. In addition, if beneficial, we may seek to
collaborate with others to develop and commercialize PH94B, PH10,
AV-101, and/or other CNS 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
PH94B, PH10, AV-101, or other CNS 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.
-47-
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.
-48-
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 $17.9
million and $20.8 million during our fiscal years ended March 31,
2021 and 2020, respectively. At March 31, 2021, we had an
accumulated deficit of approximately $242.8 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 recurring revenues. Through March 31, 2021, we have
generated approximately $22.7 million in revenues, consisting of
receipts of non-dilutive cash payments from collaborators,
sublicense revenue, including the $5.0 million cash payment
received under the AffaMed Agreement during the quarter ended
September 30, 2020, the majority of which has been recorded as
deferred revenue at March 31, 2021, 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,
PH94B, PH10, AV-101 or another future CNS product candidate, or we
enter into one or more development and commercialization agreements
with respect to PH94B, PH10, AV-101 or one or more other future CNS
product candidates. Our ability to generate recurring 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 CNS 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 CNS 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 CNS product candidates in the
medical community and with third-party payors.
|
-49-
If our Phase 3 studies of PH94B for the acute treatment of anxiety
in adults with SAD are successful, unless we enter into a
contractual arrangement for the commercialization of PH94B in the
U.S., we expect to incur significant sales and marketing costs as
we prepare to commercialize PH94B on our own in the U.S. Even if we
initiate and successfully complete Phase 3 clinical trials of PH94B
and our other CNS product candidates, and all of our CNS product
candidates are approved for commercial sale, and despite expending
substantial capital for sales and marketing costs, PH94B and our
other 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 long-term business
plan.
Since our inception, a substantial portion of our resources have
been dedicated to research and development of AV-101 and
VistaStem’s stem cell technology platform. In particular, (i)
for AV-101, we have expended substantial resources on research and
development of methods and processes relating to the production of
API and drug product, IND-enabling preclinical studies, Phase 1
clinical safety studies, and a Phase 2 clinical study completed in
2019 and (ii) for VistaStem, development of
cardiac stem cell technology. In addition,
beginning in 2018, we have expended a considerable portion of our
resources for research, development, manufacturing and regulatory
expenses related to the development and production of PH94B,
including costs related to the PALISADE Phase 3 program, and PH10.
We expect to continue to expend substantial resources for the
foreseeable future developing and commercializing our CNS 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, 2021, we had cash and cash equivalents of
approximately $103.1 million. We believe this amount 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 Report.
Although we received the $5 million non-dilutive cash upfront
payment under the AffaMed Agreement in August 2020 and expect to
recognize that amount as revenue in future periods, we have no
other recurring source of revenue or recurring cash flows from
product sales to sustain our present activities, and we do not
expect to generate sustainable positive operating cash flows until,
and unless, we (i) out-license or sell a product candidate to a
third-party that is subsequently successfully developed and
commercialized, (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 PH94B, on our own or through a future collaboration,
or one of our other product candidates.
As the outcome of our ongoing research and development activities,
including the outcome of future anticipated nonclinical studies and
clinical trials is highly uncertain, we cannot reasonably estimate
the actual amounts necessary to successfully complete the
development and commercialization of our current CNS product
candidates, on our own or in collaboration with others. As in prior
periods, we will continue to incur substantial costs associated
with other development programs for PH94B, PH10 and AV-101. In
addition, other unanticipated costs may arise. As a result of these
and other factors, we will need to seek additional capital to meet
our future operating plans and requirements, including capital
necessary to develop, obtain regulatory approval for, and to
commercialize our CNS 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 and requirements.
We have completed in the past 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 pursue and complete additional financing
arrangements in the future. Even if we believe we have sufficient
funds for our current or future operating plans and requirements,
we may seek additional capital if market conditions are favorable
or if we have specific strategic considerations.
-50-
Our future capital requirements may 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 and formulating 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. 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.
When necessary, 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.
Current volatile and/or recessionary economic conditions in the
U.S. or abroad could adversely affect our business or our access to
capital markets in a material manner.
To date, our principal sources of capital used to fund our
development programs and other operations have been the net
proceeds we received from sales of equity
securities.
We have and
will continue to use significant capital for the development and
commercialization of our product candidates, and, as such, we
expect to seek additional capital from future issuance(s) of our
securities, which may consist of issuances of equity and/or debt
securities, to fund our planned operations.
Accordingly, our results of operations and the implementation of
both our short-term and long-term business plan could be adversely
affected by general conditions in the global economy, including
conditions that are outside of our control, such as the impact of
health and safety concerns from the current COVID-19 pandemic. The
ongoing COVID-19 pandemic has resulted in extreme volatility and
disruptions in the capital and credit markets. A prolonged economic
downturn could result in a variety of risks to our business and may
have a material adverse effect on us, including limiting or
restricting our ability to access capital on favorable terms, or at
all, which would limit our ability
to obtain adequate
financing to maintain our operations.
-51-
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 and are now taking steps to correct material
weaknesses in our internal control over financial reporting. In
particular, we concluded that (i) the size of our staff has not
allowed 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) we have utilized
accounting software that did not prevent erroneous or unauthorized
changes to previous reporting periods and/or could 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 may pursue private and public equity offerings, debt financings,
strategic collaborations and licensing arrangements in the future.
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.
We may be required to raise additional financing by issuing new
securities with terms or rights superior to those of our existing
securityholders, which could adversely affect the market price of
shares of our common stock and our business.
We will require additional financing to fund future operations,
including our research and development activities for our CNS
product candidates and our anticipated pre-launch commercialization
activities, assuming our clinical development programs are
successful and we receive necessary approvals from the FDA. We may
not be able to obtain financing on favorable terms, if at all. If
we raise additional funds by issuing equity securities, the
percentage ownership of our current stockholders will be reduced,
and the holders of the new equity securities may have rights
superior to those of our existing security holders, which could
adversely affect the market price of our common stock and the
voting power of shares of our common stock. If we raise additional
funds by issuing debt securities, the holders of these debt
securities would similarly have some rights senior to those of our
existing securityholders, and the terms of these debt securities
could impose restrictions on operations and create a significant
interest expense for us, which could have a materially adverse
effect on our business.
Our ability to use net operating losses to offset future taxable
income is subject to certain limitations.
As of March 31, 2021, we had federal and state net operating
loss carryforwards of approximately $139.2 million and $64.6
million, respectively, which have begun to expire in fiscal 2022
and will continue to expire in future periods. 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.
-52-
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, Chief Commercial Officer
and Senior Vice President – Head of CMC, as well as our other
employees, advisors, consultants and scientific and clinical
collaborators. As of the date of this Report, we have 21 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 pharmaceuticals field is intense. We will need to
hire additional personnel to expand our administrative, research
and development and commercial 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 and CMOs and CROs, 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, commercial 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 PH94B, PH10, AV-101, or any other
product candidate we or our collaborators 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.
|
-53-
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.
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 economic downturn
triggered by the ongoing COVID-19 pandemic, 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.
Additionally, having shifted substantially to
remote working arrangements, we also face a heightened risk of
cybersecurity attacks or data security incidents and are more
dependent on internet and telecommunications access and
capabilities.
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 PH94B, PH10, AV-101 or other product candidates could
result in substantial 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.
-54-
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 CNS 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.
Current politics in the U.S. could diminish the value of the
pharmaceutical industry, thereby diminishing the value of our
securities.
The current political environment in the U.S. has led many
incumbents and political candidates to propose various measures to
reduce the prices for pharmaceuticals. As a result of the U.S.
presidential 2020 elections, it is likely that these proposals will
receive increasing publicity which, in turn, may cause the
investing public to reduce the perceived value of pharmaceutical
companies. Any decrease in the overall perception of the
pharmaceutical industry may have an adverse impact on our share
price and may limit our ability to raise capital needed to continue
our drug development programs.
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 PH94B, PH10, AV-101 and
also to certain stem cell technology.
Although we own and have licensed issued and allowed patents and
patent applications relating to PH94B, PH10 and AV-101 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
patent claims that we may be granted cannot be predicted with
certainty.
Our ability to obtain valid and enforceable patents depends, among
other factors, 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, for example,
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 and that may prevent a pending
patent application from being granted or result in an issued patent
being held invalid or unenforceable. Moreover, the relevant
standards for granting and reviewing patents varies among countries
in which we pursue patents.
-55-
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
do certain of our product candidates or that were evaluated in
early (often pre-clinical) studies that did not progress to
regulatory approval. In addition, even some reports in the trade
press and public announcements made by 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
the filing of our initial AV-101 patent application, 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 two continuation depression-related
AV-101 patent applications that have similar claims and the USPTO
did not make further rejection based on that post. 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
relevant 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 PH94B, PH10 or
AV-101, 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.
-56-
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 PH94B, PH10, AV-101 or any
pending patent applications, if issued and challenged by others,
will include or maintain claims having a scope sufficient to
protect PH94B, PH10, AV-101 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.
-57-
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.
-58-
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.
We 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.
-59-
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 PH94B, PH10 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. Our existing license agreements impose, and we expect
that any 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.
-60-
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 if the active ingredient of PH94B, PH10 or
AV-101 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.
-61-
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:
-62-
|
●
|
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
a potential NCE candidate based on information available to us in
the public domain, we seek to in-license a NCE candidate 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 NCEs that we may produce and
develop. If we are unable to obtain ownership or substantial
economic participation rights over intellectual property related to
NCEs we produce and develop, our business may be adversely
affected.
Risks Related to our Securities
Market volatility may affect our stock price and the value of your
investment.
The market price for our common stock, similar to that of other
biopharmaceutical companies, is likely to remain 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:
|
●
|
volatility resulting from uncertainty and general economic
conditions caused by the ongoing COVID-19 pandemic;
|
|
●
|
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;
|
-63-
|
●
|
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. 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.
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 as of the date of this Report; (ii) 4.0
million shares of Series B 10% Convertible Preferred stock, of
which approximately 1.1 million shares remain issued and
outstanding as of the date of this Report; (iii) 3.0 million shares
of Series C Convertible Preferred Stock, of which approximately 2.3
million shares are issued and outstanding as of the date of this
Report; and (iv) 2.0 million shares of Series D Convertible
Preferred stock, of which no shares were issued or outstanding as
of the date of this Report. 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.
-64-
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.
Item 2.
P
roperties
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, which contains a 5-year
option to renew. We believe that our facilities are suitable and
adequate for our current and foreseeable needs.
None.
Not applicable.
-65-
P
ART II
Item 5.
M
arket 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”.
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
Ended March 31, 2021
|
|
|
|
First quarter ended
June 30, 2020
|
$
0.68
|
$
0.35
|
|
Second quarter
ended September 30, 2020
|
$
1.06
|
$
0.46
|
|
Third quarter ended
December 31, 2020
|
$
1.96
|
$
0.6088
|
|
Fourth quarter
ended March 31, 2021
|
$
3.18
|
$
1.83
|
|
|
|
|
|
Year
Ended March 31, 2020
|
|
|
|
First quarter ended
June 30, 2019
|
$
1.35
|
$
0.52
|
|
Second quarter
ended September 30, 2019
|
$
1.32
|
$
0.38
|
|
Third quarter ended
December 31, 2019
|
$
1.49
|
$
0.29
|
|
Fourth quarter
ended March 31, 2020
|
$
0.90
|
$
0.30
|
On June
28, 2021 the
closing price of our common stock on the Nasdaq Capital Market was
$2.84
per
share.
As
of
June
28, 2021, we had
191,382,350
shares
of common stock outstanding and approximately 20,000 stockholders
of record. On the same date, two stockholders held all
500,000 outstanding restricted shares of our Series A Preferred
Stock (
Series
A Preferred
),
which shares are convertible into 750,000 shares of common stock;
one stockholder held 1,131,669 outstanding shares of our Series B
10% Convertible Preferred Stock (
Series
B Preferred
),
which shares are convertible into 1,131,669 shares of common stock,
excluding shares of our common stock which may be issued in payment
of accrued dividends upon conversion of the Series B Preferred; and
one stockholder held all 2,318,012 outstanding shares of our Series
C Convertible Preferred Stock (
Series
C Preferred
), 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.
Item 6.
S
elected
Financial Data
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 or 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 nonclinical
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 (our Board) and stockholders.
-66-
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 biopharmaceutical company committed to
developing and commercializing differentiated new generation
medications that go beyond the current standard of care for
widespread anxiety, depression and other central nervous system
(
CNS
) disorders. Our CNS pipeline includes three CNS
product candidates, PH94B Nasal Spray, PH10 Nasal Spray and AV-101,
each with a differentiated profile, favorable safety results
observed in all clinical studies to date and therapeutic potential
in multiple CNS indications. PH94B Nasal Spray (
PH94B
) is being developed for multiple anxiety
disorders. We recently initiated our PH94B Phase 3 development
program, which we refer to as the PALISADE program, with
PALISADE-1, a U.S., multi-center, randomized, double-blind,
placebo-controlled Phase 3 clinical study to evaluate the efficacy
and safety of PH94B for the acute treatment of anxiety in adults
with social anxiety disorder (
SAD
), as well as preparations for the additional
studies required to support our potential U.S. New Drug Application
(
NDA
) for that indication should the PALISADE Phase 3
program be successful. We are also preparing for exploratory Phase
2A clinical studies of PH94B in adults experiencing several other
anxiety disorders. PH10 Nasal Spray (
PH10
) is being developed as a stand-alone treatment
for multiple depression disorders. Exploratory Phase 2A clinical
development of PH10 for major depressive disorder
(
MDD
) has been completed. We are now preparing for
planned Phase 2B clinical development of PH10 for this indication.
We are preparing for a Phase 1B clinical study of AV-101 in
combination with probenecid to assess potential future Phase 2A
clinical development of the combination for MDD or certain
neurological indications. Our goal is to become a biopharmaceutical
company that develops and commercializes innovative CNS therapies
for highly prevalent neuropsychiatry and neurology indications
where current treatments options are inadequate to meet the needs
of millions of patients in markets worldwide.
Our Product Candidates
PH94B is a
synthetic investigational neurosteroid developed from proprietary
compounds called pherines. With its novel mechanism of action,
PH94B is an odorless nasal spray administered at microgram-level
doses to achieve rapid-onset anti-anxiety, or anxiolytic, effects.
The pharmacological activity of PH94B is fundamentally
differentiated from that of all FDA-approved anti-anxiety drugs,
including all antidepressants approved by the U.S. Food and Drug
Administration (
FDA
) for
treatment of SAD, as well as all benzodiazepines and beta blockers
prescribed on an off-label basis. PH94B engages peripheral
chemosensory receptors in nasal passages that trigger a subset of
neurons in the main olfactory bulbs (
OB
) at the base of the brain. The
OB neurons then stimulate inhibitory GABAergic neurons in the
limbic amygdala, decreasing the activity of the sympathetic nervous
system, and facilitating fear extinction activity of the
limbic-hypothalamic system, the main fear and anxiety center in the
brain, as well as in other parts of the brain. Importantly, PH94B
does not require systemic uptake and distribution to produce its
rapid-onset anti-anxiety effects.
Our
ongoing PALISADE Phase 3 program for PH94B is designed to further
demonstrate its potential as a fast-acting, non-sedating,
non-addictive acute treatment of anxiety in adults with SAD. We
believe PH94B also has potential to be developed as a novel
treatment for adjustment disorder with anxiety, postpartum anxiety,
post-traumatic stress disorder, procedural anxiety, panic and other
anxiety disorders. PH94B has been granted Fast Track designation
status by the FDA for development for the acute treatment of
SAD.
PH10 is a synthetic
investigational neurosteroid, which also was developed from
proprietary compounds called pherines. Its novel, rapid-onset
mechanism of action (
MOA
)
is fundamentally differentiated from the MOA of all current
treatments for MDD and other depression disorders. PH10 is
self-administered at microgram-level doses as an odorless nasal
spray. PH10 activates nasal chemosensory cells in the nasal
passages, connected to neural circuits in the brain that produce
antidepressant effects. Specifically, PH10 engages peripheral
chemosensory receptors in the nasal passages that trigger a subset
of neurons in the main OB that stimulate neurons in the limbic
amygdala. This is turn increases activity of the
limbic-hypothalamic sympathetic nervous system and increases the
release of catecholamines. Importantly, unlike all currently
approved oral antidepressants (
ADs
), PH10 does not require systemic
uptake and distribution to produce rapid-onset of antidepressant
effects. In all clinical studies to date, PH10 has not caused
psychological side effects (such as dissociation and
hallucinations) or safety concerns that may be associated with
rapid-onset ketamine-based therapy (
KBT
), including intravenous ketamine or
intranasal ketamine (esketamine).
We
believe PH10 has potential to be a new stand-alone treatment for
MDD and several other depression disorders.
AV-101 (4-Cl-KYN) targets the NMDAR (N-methyl-D-aspartate
receptor), an ionotropic glutamate receptor in the brain. Abnormal
NMDAR function is associated with numerous CNS diseases and
disorders. AV-101 is an oral prodrug of 7-chloro-kynurenic acid
(7-Cl-KYNA), which is a potent and selective full antagonist of the
glycine co-agonist site of the NMDAR that inhibits the function of
the NMDAR. However, unlike ketamine and many other NMDAR
antagonists, 7-Cl-KYNA is not an ion channel blocker. At doses
administered in all studies to date, AV-101 has been observed to be
well tolerated and has not exhibited dissociative or hallucinogenic
psychological side effects or safety concerns. In light of these
observations and findings from preclinical studies, we believe that
AV-101, in combination with FDA-approved probenecid, has potential
to become a new oral treatment alternative for certain CNS
indications involving the NMDAR. We are currently preparing to
evaluate AV-101 in combination with probenecid in a Phase 1B
clinical study. The FDA has granted Fast Track designation for
development of AV-101 as a potential adjunctive treatment for MDD
and as a non-opioid treatment for neuropathic pain
(
NP
).
-67-
Critical Accounting Policies and Estimates
We consider certain accounting policies related to revenue
recognition, determination of right of use assets under lease
transactions and related lease obligations, 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, but are not limited to, those relating to
stock-based compensation, revenue recognition, research and
development expenses, determination of right of use assets under
lease transactions and related lease obligations, and
the assumptions used to value warrants, warrant modifications,
and useful lives for property and equipment and related
depreciation calculations. 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.
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
assess the goods or services promised within each contract and
determine those that are performance obligations. Arrangements that
include rights to additional goods or services that are exercisable
at a customer’s discretion are generally considered options.
We assess whether these options provide a material right to the
customer and if so, they are considered performance obligations.
The exercise of a material right may be accounted for as a contract
modification or as a continuation of the contract for accounting
purposes.
We
assess whether each promised good or service is distinct for the
purpose of identifying the performance obligations in the contract.
This assessment involves subjective determinations and requires
judgments about the individual promised goods or services and
whether such are separable from the other aspects of the
contractual relationship. Promised goods and services are
considered distinct provided that: (i) the customer can benefit
from the good or service either on its own or together with other
resources that are readily available to the customer (that is, the
good or service is capable of being distinct) and (ii) our promise
to transfer the good or service to the customer is separately
identifiable from other promises in the contract (that is, the
promise to transfer the good or service is distinct within the
context of the contract). In assessing whether a promised good or
service is distinct in the evaluation of a collaboration
arrangement subject to Topic 606, we consider factors such as the
research, manufacturing and commercialization capabilities of the
collaboration partner and the availability of the associated
expertise in the general marketplace. We also consider the intended
benefit of the contract in assessing whether a promised good or
service is separately identifiable from other promises in the
contract. If a promised good or service is not distinct, we are
required to combine that good or service with other promised goods
or services until we identify a bundle of goods or services that is
distinct.
-68-
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.
Right of use assets and lease obligations
We adopted Accounting Standards Update No. 2016-02,
“
Leases (Topic
842)”
(
ASU
2016-02
) effective April 1,
2019
.
ASU 2016-02
requires that we determine, at the inception of an arrangement,
whether the arrangement is or contains a lease, based on the unique
facts and circumstances present. Operating lease assets represent
our right to use an underlying asset for the lease term
(
Right of use assets
) and
operating lease liabilities represent our obligation to make lease
payments arising from the lease. Right of use assets and operating
lease liabilities are recognized at the commencement date of the
lease based upon the present value of lease payments over the lease
term. When determining the lease term, we include options to extend
or terminate the lease when it is reasonably certain, at inception,
that we will exercise that option. The interest rate implicit in
lease contracts is typically not readily determinable; accordingly,
we use our incremental borrowing rate, which is the rate that would
be incurred to borrow on a collateralized basis over a similar term
an amount equal to the lease payments in a similar economic
environment, based upon the information available at the
commencement date. The lease payments used to determine our
operating lease assets may include lease incentives, stated rent
increases and escalation clauses linked to rates of inflation, when
determinable, and are recognized in determining our Right of use
assets. Our operating lease is reflected in the right-of-use asset
– operating lease; operating lease obligation - current
portion; and operating lease obligation - non-current portion in
our consolidated balance sheets.
Lease
expense for minimum lease payments is recognized on a straight-line
basis over the lease term. As a result of our adoption of ASU
2016-02, we no longer recognize deferred rent on the consolidated
balance sheet. Short-term leases, defined as leases that have a
lease term of 12 months or less at the commencement date, are
excluded from this treatment and are recognized on a straight-line
basis over the term of the lease. Variable lease payments are
amounts owed by us to a lessor that are not fixed, such as
reimbursement for common area maintenance costs for our facility
lease; and are expensed when incurred.
Financing
leases, formerly referred to as capitalized leases, are treated
similarly to operating leases except that the asset subject to the
lease is included in the appropriate fixed asset category, rather
than recorded as a Right of use asset, and depreciated over its
estimated useful life, or lease term, if shorter.
-69-
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 nonclinical
development of PH94B, PH10,
and AV-101, 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
requires 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 or other grantee
is required to perform services in exchange for the award, which
generally represents the scheduled vesting period. We have not
granted restricted stock awards to employees or consultants nor do
we have any awards with market or performance
conditions. Prior to our April 1, 2019 adoption of
ASU
2018-07,
Compensation-Stock
Compensation (Topic 718), Improvements to Nonemployee Share-Based
Payment Accounting
(
ASU
2018-07
),
we historically
re-measured the fair value of option grants to non-employees as
they vested and any resulting increase in value was recognized as
an expense during the period over which the services were
performed. Under ASU 2018-17, expense recognition for grants to
non-employees follows the same methodology as for employees.
Noncash expense attributable to compensatory grants of our common
stock to non-employees is determined by the quoted market price of
the stock on the date of grant and is either recognized as
fully-earned at the time of the grant or 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
relatively limited period during which our stock has been publicly
traded on a major exchange 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.
-70-
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
Although
we entered into the AffaMed Agreement in June 2020 and the Bayer
Agreement in December 2016, we have not yet achieved recurring
revenue-generating status in amounts sufficient to sustain our
operations and enable our strategic business plans from any of our
product candidates or technologies.
Since inception, we have devoted substantial time
and effort to developing AV-101 for multiple CNS indications,
including manufacturing research, process development and
production of AV-101 drug substance and finished drug product,
preclinical efficacy and safety studies, and clinical efficacy and
safety studies in CNS indications. Since acquiring our exclusive
worldwide licenses to PH94B and PH10 in 2018, we have devoted
substantial resources focused on research, development and
commercialization of PH94B and PH10, including initiatives to
advance manufacturing research, process development and production
programs for drug substance and finished drug product, additional
preclinical safety studies, and clinical efficacy and safety
studies in multiple neuropsychiatry indications. Also,
from-time-to-time, we have devoted resources to VistaStem’s
stem cell technology research and development, bioassay development
and small molecule drug rescue initiatives, as well as creating,
protecting and patenting intellectual property (
IP
) related to our product candidates and stem cell
technologies, with the corollary initiatives of recruiting and
retaining personnel and raising working capital.
As of March
31, 2021, we had an accumulated deficit of approximately $242.8
million. Our net loss for the fiscal years ended March 31, 2021 and
2020 was approximately $17.9 million and $20.8 million,
respectively. We expect losses to continue for the foreseeable
future, primarily as we
engage in
further research, development and commercialization activities
related to PH94B, PH10 and AV-101, and pursue VistaStem’s
potential drug rescue, drug development and CT and RM
opportunities.
Summary of the Fiscal Year Ended March 31, 2021
On December 22, 2020, we completed a transformative $100 million
underwritten public offering (the
December 2020
Public
Offering
) of our securities,
consisting of shares of our common stock and shares of our newly
created Series D Convertible Preferred Stock (
Series
D Preferred
).
After deducting underwriting discounts and
commissions and offering expenses payable by us, we received net
proceeds of approximately $93.6 million from the sale of our
securities in the December 2020 Public Offering.
Combined
with financing and development and commercialization partnering
transactions completed earlier in our fiscal year, aggregating
approximately an additional $25 million, the proceeds from the
December 2020 Public Offering have provided us with working capital
to advance an important stream of potential catalysts across our
CNS pipeline, including, among others, our Phase 3 development
program for PH94B for the acute treatment of anxiety in adults with
social anxiety disorder (
SAD
)
and, upon successful Phase 3 development, submission of our New
Drug Application to the U.S. Food and Drug Administration and
potential U.S. market approval of PH94B.
From an operational perspective, during our fiscal year ended March
31, 2021 (
Fiscal 2021
), we continued to advance our manufacturing,
preclinical and clinical development, and regulatory initiatives
necessary for our Phase 3 clinical development of PH94B as a
potential acute treatment of anxiety in adults with SAD, PH10 as a
potential stand-alone treatment of MDD and AV-101 in combination
with probenecid as a potential treatment for NMDAR-focused
indications. During the quarter ended March 31, 2021, and
thereafter, following the completion of the December 2020 Public
Offering, we increased our headcount with the addition of twelve
additional employees with significant expertise in various
disciplines including manufacturing, regulatory affairs, clinical
development, commercial affairs and administrative functions.
Further, we accelerated our planning for clinical trials for both
PH94B and PH10, culminating in the start of the PALISADE-1 Phase 3
clinical study in late-May 2021. The PALISADE-1 Phase 3 clinical
study is part of our PH94B PALISADE Phase 3 program for the acute
treatment of anxiety in adult patients with SAD. Throughout Fiscal
2021, we continued to expand our regulatory and intellectual
property foundation to support broad clinical development and,
ultimately, commercialization of our CNS product candidates in the
U.S. and foreign markets.
-71-
Throughout
Fiscal 2021 and through the date of this Report,
a strain of SARS-CoV-2, commonly referred to as
COVID-19, has spread to many countries in the world and the
outbreak was declared a pandemic by the World Health Organization.
The U.S. Secretary of Health and Human Services also declared a
public health emergency in the U.S. in response to the
outbreak.
From time to time during the COVID-19 pandemic,
our operations and those of our CROs and CMOs have been and still
may be impacted by
shelter-in-place
orders, social distancing measures, travel bans and restrictions,
and certain business and government closures or reductions in
service. Our headquarters operations have been significantly
curtailed and our employees have worked remotely since the
beginning of the COVID-19 pandemic. From time to time
since
the beginning of the COVID-19 pandemic, we have experienced delays
in the delivery of supplies of active pharmaceutical product
(
API
) or other key
materials required to continue development of PH94B and PH10.
Future unexpected delays may result in a significant, material
delay or disruption to our current clinical development plans,
programs, and operations.
During our
fiscal quarter ended June 30, 2020, we completed
a successful and positive meeting with
the FDA regarding Phase 3 clinical development of PH94B for the
acute treatment of anxiety in adult patients with SAD, reaching
consensus with the FDA on key aspects of the design of our Phase 3
clinical trials of PH94B, which studies will be randomized,
double-blind, placebo-controlled, studies involving a single-event,
laboratory-simulated public speaking challenge in adult subjects
with SAD. As noted earlier, the initial Phase 3 clinical trial of
PH94B, PALISADE-1, commenced in late-May 2021. Dr. Michael
Liebowitz, Professor of Clinical Psychiatry at Columbia University,
director of the Medical Research Network in New York City, and
creator of the Liebowitz Social Anxiety Scale (
LSAS
), is the Principal Investigator of PALISADE-1.
Target enrollment for PALISADE-1 (completed patients) is
approximately 208 adult patients with SAD. As in the statistically
significant (p=0.002) public speaking component of the Phase 2
study, the patient-reported Subjective Units of Distress Scale
(
SUDS
) will be used to assess the primary efficacy
endpoint in PALISADE-1. Throughout Fiscal 2021, we have been
actively engaged in formalizing processes and procedures for the
manufacture of PH94B for the PALISADE Phase 3 program and Phase 2
programs in other anxiety indications, and of PH10 for our planned
Phase 2B clinical study of PH10 in MDD and other Phase 2 and
nonclinical studies of PH10.
In June 2020, we entered into a strategic licensing and
collaboration agreement for the clinical development and
commercialization of PH94B (the
EverInsight
Agreement
) with
EverInsight Therapeutics Inc. (
EverInsight
),
a biopharmaceutical company focused on developing and
commercializing transformative pharmaceutical products for patients
in Greater China and other parts of Asia
. Subsequent to
entering into the EverInsight Agreement, in October 2020,
EverInsight merged with AffaMed Therapeutics, Inc., which as a
combined, complementary entity is focusing on developing and
commercializing therapeutics to address ophthalmologic and CNS
disorders in Greater China and beyond. Accordingly, we are now
referring to EverInsight and the EverInsight Agreement as AffaMed
and the AffaMed Agreement, respectively.
Under the terms of the AffaMed
Agreement, AffaMed is responsible for clinical development,
regulatory submissions and commercialization of PH94B for the
treatment of SAD, and potentially other anxiety-related
indications, in key markets in Asia, including markets in Greater
China, South Korea and Southeast Asia (collectively, the
Territory
).
Under the terms of the AffaMed Agreement, in August 2020, we
received a non-dilutive upfront license fee payment of $5.0 million
from AffaMed. Upon successful development and commercialization of
PH94B in the Territory, we are eligible to receive up to $172
million in additional development and commercial milestone
payments, plus royalties on commercial sales of PH94B in the
Territory. After payment of sublicense fees to Pherin
Pharmaceuticals, Inc. (
Pherin
)
pursuant to our PH94B license from Pherin, and payment of
consulting fees related to consummation of the AffaMed Agreement,
we received net cash proceeds of approximately $4.655
million.
In December 20
20, we sold
63,000,000 shares of our common stock in at a public offering price
of $0.92 per share and 2,000,000 shares of our Series D Preferred
at a public offering price of
$21.16 per share, resulting in gross proceeds to us of $100 million
(the
December 2020 Public
Offering
). Net proceeds to us from the securities sold in
the December 2020 Public Offering, after deducting underwriting
discounts and commissions and offering expenses payable by us, was
approximately $93.6 million.
Earlier
in Fiscal 2021, in August 2020, we sold, in an underwritten public
offering (the
August 2020 Public
Offering
), an aggregate of
15,625,000 shares of our common stock for a public offering price
of $0.80 per share, resulting in gross proceeds to us of
$12,500,000. We also granted to the underwriter an
over-allotment option to purchase up to an additional
2,343,750 shares at a public offering price of $0.80 per share,
which option was exercised with respect to 2,243,250 shares
(the
Exercised Option
Shares
). The sale of the
Exercised Option Shares resulted in additional gross proceeds to us
of $1,794,600. Aggregate net proceeds to us from the August 2020
Public Offering, after deducting underwriting discounts and
commissions and offering expenses payable by us, was approximately
$12.9 million.
To satisfy our obligations under the common stock
purchase and registration rights agreements that we entered into
with Lincoln Park Capital Fund (
Lincoln
Park
) in March 2020, we filed a
Registration Statement on Form S-1 (the
LPC Registration
Statement
) with the SEC on
March 31, 2020 (Registration No. 333-237514), which the SEC
declared effective on April 14, 2020 (the
Commencement
Date
). Subsequent to the
Commencement Date and through July 2020, we sold 6,301,995
registered shares of our common stock to Lincoln Park and received
aggregate cash proceeds of $2,891,200. We have not sold any
additional shares to Lincoln Park under these agreements since July
2020. We terminated the stock purchase agreement with Lincoln Park
effective on June 25, 2021.
As a
matter of course, we continue to minimize, to the greatest extent
possible, cash commitments and expenditures for both internal and
external research and development and general and administrative
services.
To further advance the
nonclinical and clinical development of PH94B, PH10 and AV-101, 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.
-72-
Comparison of Fiscal Years Ended March 31, 2021 and
2020
The following table summarizes the results of our operations for
the fiscal years ended March 31, 2021 and 2020 (amounts in
thousands).
|
|
Fiscal
Years Ended March 31,
|
|
|
|
2021
|
2020
|
|
|
|
|
|
Sublicense
revenue
|
$
1,089
|
$
-
|
|
Operating
expenses:
|
|
|
|
Research and
development
|
12,476
|
13,374
|
|
General and
administrative
|
6,547
|
7,427
|
|
Total
operating expenses
|
19,023
|
20,801
|
|
|
|
|
|
Loss from
operations
|
(17,934
)
|
(20,801
)
|
|
|
|
|
|
Interest income,
net
|
2
|
30
|
|
Other
income
|
1
|
-
|
|
|
|
|
|
Loss before income
taxes
|
(17,931
)
|
(20,771
)
|
|
Income
taxes
|
(3
)
|
(3
)
|
|
|
|
|
|
Net
loss
|
(17,934
)
|
(20,774
)
|
|
Accrued
dividend on Series B Preferred Stock
|
(1,386
)
|
(1,264
)
|
|
Beneficial
conversion feature on Series D Preferred Stock
|
(23,000
)
|
-
|
|
Net loss
attributable to common stockholders
|
$
(42,320
)
|
$
(22,038
)
|
Revenue
We recognized $1,089,500 in sublicense revenue pursuant to the
AffaMed Agreement in Fiscal 2021 compared to none in the fiscal
year ended March 31, 2020 (
Fiscal 2020
). As noted earlier, in June 2020, we entered into
the AffaMed Agreement, pursuant to which we received a non-dilutive
upfront license fee payment of $5.0 million in August 2020. We
initially recorded this payment as
deferred revenue and we
are recognizing it as revenue on a straight-line basis over the
period in which we expect to perform the services required under
the AffaMed Agreement. We currently estimate that we will complete
our performance obligations at the end of calendar 2023.
While we may potentially receive
additional cash payments and royalties in the future under the
AffaMed Agreement in the event certain performance-based milestones
and commercial sales are achieved, there can be no assurance that
the AffaMed Agreement will provide additional revenue beyond that
noted or cash payments to us in the near term, or at
all.
Research and Development Expense
Research and development (
R&D
) expense decreased from $13.4 million in Fiscal
2020 to $12.5 million in Fiscal 2021, primarily due to the
completion of the Elevate Study of AV-101 in Fiscal 2020,
noticeably offset by increased developmental expenses in Fiscal
2021 for PH94B and PH10. Expenses related to the Elevate Study and
other AV-101 related nonclinical activities decreased by
approximately $5.9 million in Fiscal 2021 compared to Fiscal 2020,
while expenses for PH94B and PH10 preclinical and clinical
readiness initiatives increased by $5.2 million in Fiscal 2021
compared to Fiscal 2020. Salaries and benefits expense increased in
Fiscal 2021 as a result of the addition of six new senior-level
employees during the third and fourth quarters of Fiscal 2021 and
bonus payments made in the third quarter of Fiscal 2021. Noncash
research and development expenses, primarily stock-based
compensation and equipment depreciation in both periods, accounted
for approximately $841,000 and $1,380,000 in Fiscal 2021 and Fiscal
2020, respectively.
-73-
The following table indicates the primary components of R&D
expense for each of the periods (amounts in
thousands):
|
|
Fiscal
Years Ended March 31,
|
|
|
|
2021
|
2020
|
|
|
|
|
|
Salaries and
benefits
|
$
1,986
|
$
1,381
|
|
Stock-based
compensation
|
747
|
1,287
|
|
Consulting and
other professional services
|
327
|
533
|
|
Technology licenses
and royalties
|
551
|
546
|
|
Project-related
research, licenses and supplies:
|
|
|
|
Elevate study and
other AV-101 expenses
|
611
|
6,483
|
|
PH94B and PH10
development expenses
|
7,620
|
2,448
|
|
Stem cell and all
other
|
24
|
110
|
|
|
8,255
|
9,041
|
|
Rent
|
545
|
535
|
|
Depreciation
|
64
|
49
|
|
All
other
|
1
|
2
|
|
|
|
|
|
Total Research and
Development Expense
|
$
12,476
|
$
13,374
|
The increase in salaries and benefits expense in Fiscal 2021
reflects (i) the impact of bonus payments made to our Chief Medical
Officer (
CMO
), Chief Scientific Officer (
CSO
), and members of our scientific staff in December
2020, (ii) modest salary increases to those officers and employees
effective in the fourth quarter of Fiscal 2021; and (iii) the
addition of six officer-level employees between December 2020 and
March 2021. There were no changes in base compensation levels for
our CMO, CSO, or other members of our scientific staff between
April 2019 and December 2020 and no bonus expense or payments
during that same period.
Current year stock-based compensation expense reflects the
amortization of option grants made to our CMO, CSO, members of our
scientific staff, our new senior-level employees and certain
clinical and scientific consultants since June 2016, all earlier
outstanding grants having become fully vested and amortized during
Fiscal 2021 or earlier. Grants awarded after March 31, 2020,
including those granted during Fiscal 2021, account for
approximately $348,700 of expense in Fiscal 2021, offset by an
expense reduction of approximately $814,400 attributable to certain
options granted between June 2016 and January 2019 that became
fully vested and amortized during Fiscal 2021 or earlier. Fiscal
2021 stock compensation expense is further reduced by approximately
$79,500 due to the absence of the impact of immediate vesting
attributable to certain options granted in May 2019 or fully
vesting prior to March 31, 2020. Except for grants to new
employees, expense attributable to recent option grants is
generally being amortized over two-year to three-year vesting
periods, with essentially all of the grants made since May 2019,
including those made in Fiscal 2021, being 25% vested and expensed
upon grant, in accordance with the terms of the respective grants.
Grants to new employees generally vest 25% on the first anniversary
of the grant date and ratably monthly over the next three
years.
Consulting and other professional services reflects fees incurred,
generally on an as-needed basis, for project-based scientific,
nonclinical and clinical development and regulatory advisory and
analytical services rendered to us by third parties, including by
members of our Scientific Advisory Board and CNS Clinical and
Regulatory Advisory Board, especially in support of our PH94B and
PH10 development initiatives. Fiscal 2021 expense reflects a
reduction of $110,000 in development support payments to Pherin
which terminated in April 2020 under the terms of our PH94B and
PH10 license agreements and a $95,000 reduction in analytical and
other services in support of PH94B and PH10 development compared to
Fiscal 2020, a portion of which is attributable to the conversion
of a consultant to an employee in Fiscal 2021.
Technology license and royalties expense primarily reflects legal
counsel and other costs related to patent prosecution and
protection pursuant to our stem cell technology license agreements,
our AV-101 patents, or patents that we have elected to pursue for
commercial purposes, as well as recurring annual license fees.
These costs do not occur ratably throughout the year or between
years. In both periods, this expense includes legal counsel and
other costs we have incurred to advance various patent applications
in the U.S. and numerous foreign countries, primarily with respect
to AV-101 and our stem cell technology platform, but also nominally
with respect to our PH94B and PH10 intellectual property portfolios
during Fiscal 2021.
AV-101 project expense for Fiscal 2020 reflects the costs of
actively conducting the Elevate Study in MDD, including various
CROs, investigator and clinical site costs, and determination of
topline study results, as well as CRO support services for AV-101
projects for indications other than MDD, and, to lesser extent,
expense incurred to manufacture additional quantities of AV-101 for
use in potential future clinical development of AV-101 in a number
of potential CNS indications. AV-101 project expense for Fiscal
2021 primarily reflects the cost of certain preclinical studies
related to the use of AV-101 with probenecid and certain AV-101
manufacturing stability studies, and costs incurred to finalize the
results of the Elevate Study for regulatory
submission.
PH94B and PH10 project expenses for both Fiscal 2021 and Fiscal
2020 reflect research and development and manufacturing and
regulatory initiatives necessary to facilitate Phase 3 clinical
development and readiness of PH94B for acute treatment of anxiety
in adults with SAD and Phase 2B development of PH10 for MDD.
Manufacturing, formulation and analysis of sufficient quantities of
drug substance and drug product have been the key initiatives
during Fiscal 2021 for advancing the further clinical development
of both PH94B and PH10, with costs for PH94B significantly
exceeding those for PH10 in Fiscal 2021 and in comparison to those
of Fiscal 2020. From time to time during Fiscal 2021, production,
logistics and analytical processes for both of these product
candidates were delayed due to the ongoing COVID-19
pandemic.
-74-
Stem cell and other project related expenses reflects costs
associated with drug rescue applications of our stem cell
technology in both years. These expenses are typically incurred by
our in-house scientific personnel. As a result of shelter-in-place
and remote working requirements related to the ongoing COVID-19
pandemic, such expenses were reduced to an insignificant level
during Fiscal 2021.
Rent expense for both Fiscal 2020 and Fiscal 2021 reflects our
implementation of ASC 842 effective April 1, 2019 and the
requirement to recognize, as an operating lease related to our
South San Francisco office and laboratory facility, a right-of-use
asset and a lease liability, both of which must be amortized over
the expected lease term. The underlying lease reflects commercial
property rents prevalent in the South San Francisco real estate
market at the time of our November 2016 lease amendment extending
the lease of our headquarters facilities in South San Francisco by
five years from July 31, 2017 to July 31, 2022. We allocate total
rent expense for our South San Francisco facility between research
and development expense and general and administrative expense
based generally on square footage dedicated to each function.
Following our implementation of ASC 842, the modest increase in
rent expense between periods is primarily related to Fiscal 2021
increases in such items as common area maintenance fees, taxes and
insurance which are generally assessed to us by our
landlord.
General and Administrative Expense
General and administrative (
G&A
) expense decreased to approximately $6.5 million
in Fiscal 2021 from approximately $7.4 million in Fiscal 2020. Cash
compensation in Fiscal 2021 increased by approximately $0.7 million
while noncash stock-based compensation decreased by approximately
$1.0 million in Fiscal 2021. Further, during Fiscal 2020 we
modified certain outstanding warrants and recognized non-cash
warrant modification expense of $826,900. Noncash G&A expense,
approximately $1,731,000 for Fiscal 2021, decreased from
approximately $3,543,000 for Fiscal 2020, primarily due to the
decreases in stock-based compensation and warrant modifications
noted above and the noncash components of investor and public
relations expense in Fiscal 2020 attributable to the amortization
of the fair value of common stock or warrants granted to service
providers.
The following table indicates the primary components of G&A
expense for each of the periods (amounts in
thousands):
|
|
Fiscal
Years Ended March 31,
|
|
|
|
2021
|
2020
|
|
|
|
|
|
Salaries and
benefits
|
$
2,052
|
$
1,382
|
|
Stock-based
compensation
|
1,559
|
2,533
|
|
Board fees and
other consulting services
|
428
|
185
|
|
Legal, accounting
and other professional fees
|
564
|
575
|
|
Investor and public
relations
|
695
|
933
|
|
Insurance
|
449
|
348
|
|
Travel
expenses
|
4
|
81
|
|
Rent and
utilities
|
354
|
354
|
|
Sublicense contract
amortized acquisition expense
|
102
|
-
|
|
Warrant
modification expense
|
-
|
827
|
|
All other
expenses
|
340
|
209
|
|
|
$
6,547
|
$
7,427
|
The increase in salaries and benefits expense for Fiscal 2021
primarily reflects the impact of (i) bonus payments made 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 in December 2020; (ii) modest
salary increases to those officers and employee effective in the
fourth quarter of Fiscal 2021; and (iii) the addition of three
senior-level employees during February 2021 and March 2021. There
were no changes in base compensation levels for our CEO, CFO, or
VP-Corporate Development between April 2019 and December 2020 and
no bonus expense or payments to them during that same
period.
Current year stock-based compensation expense reflects the
amortization of option grants made to our CEO, CFO, VP Corporate
Development, administrative staff, independent members of our Board
and certain consultants since June 2016, all earlier outstanding
grants having become fully vested and amortized during Fiscal 2021
or earlier. Grants awarded after March 31, 2020 account for
approximately $677,000 of expense in Fiscal 2021, offset by an
expense reduction of approximately $1,515,000 attributable to
certain options granted between June 2016 and January 2019 that
became fully vested and amortized during Fiscal 2021 or earlier.
Fiscal 2021 stock compensation expense is further reduced by
approximately $141,700 due to the absence of the impact of
immediate vesting attributable to certain options granted in May
2019 or fully vesting prior to March 31, 2020. Except for grants to
new employees, expense attributable to recent option grants is
generally being amortized over two-year to three-year vesting
periods, with essentially all of the grants made since May 2019,
including those made in Fiscal 2021, being 25% vested and expensed
upon grant, in accordance with the terms of the respective grants.
Grants to new employees generally vest 25% on the first anniversary
of the grant date and ratably monthly over the next three
years.
-75-
Board fees and other consulting services represent, in both
periods, fees paid as consideration for Board and Board Committee
services to the independent members of our Board of Directors and,
additionally in the current year, other consulting service fees
related to commercial analyses of both PH94B and PH10.
Legal, accounting and other professional fees for Fiscal 2021 and
Fiscal 2020 includes expense related to routine corporate legal
fees as well as the accounting expense related to the annual audit
of our prior year financial statements and the three quarterly
reviews of our current year financial statements. In Fiscal 2021,
we incurred additional consulting fees related to revenue
recognition accounting for the AffaMed Agreement and, in Fiscal
2020, we incurred fees attributable to services provided by an
international business development consultant.
Investor and public relations expense includes the fees of our
various external service providers for a broad spectrum of investor
relations, public relations and social media services, and well as
market awareness and strategic advisory and support functions and
initiatives that, in Fiscal 2020, included numerous in-person
meetings in multiple U.S. and certain foreign markets and other
communication activities focused on expanding global market
awareness of the Company, our CNS product candidate pipeline and
technologies and our research and development programs, including
among registered investment professionals and investment advisors,
individual and institutional investors, and prospective strategic
collaborators for development and commercialization of our product
candidates in major pharmaceutical markets worldwide. During Fiscal
2021, we curtailed the number and scope of external service
providers engaged in these activities compared to the prior year.
Further, in Fiscal 2020, in addition to cash fees and expenses we
incurred for such activities, we recognized approximately $105,900
of noncash expense attributable to the amortization of the fair
value of stock and warrants granted in previous periods to various
corporate development, investor relations, and market awareness
service providers. No such noncash expense was incurred in Fiscal
2021.
The
increase in insurance expense for Fiscal 2021 is primarily
attributable to the market-rate increase in the premium for our
directors and officers liability insurance upon renewal of our
policy in May 2020.
In Fiscal 2020, travel expense reflects costs associated with
in-person management presentations and meetings held in multiple
U.S. markets and certain international markets with existing and
potential individual and institutional investors, investment
professionals and advisors, media, and securities analysts, as well
as various investor relations, market awareness and corporate
development and partnering initiatives and in monitoring the
progress of our Elevate Study. As a result of periodic
shelter-in-place restrictions and travel and workplace precautions
and restrictions associated with the ongoing COVID-19 pandemic,
during Fiscal 2021, such meetings have occurred remotely without
requiring in-person business travel by our executives.
Rent expense for both periods presented reflects our implementation
of ASC 842 effective April 1, 2019 and the requirement to
recognize, as an operating lease related to our South San Francisco
office and laboratory facility, a right-of-use asset and a lease
liability, both of which must be amortized over the expected lease
term. The underlying lease reflects commercial property rents
prevalent in the South San Francisco real estate market at the time
of our November 2016 lease amendment extending the lease of our
headquarters facilities in South San Francisco by five years from
July 31, 2017 to July 31, 2022. We allocate total rent expense for
our South San Francisco facility between research and development
expense and general and administrative expense based generally on
square footage dedicated to each function. Following our
implementation of ASC 842, increases or decreases in rent expense
between periods are primarily related to changes in such items as
common area maintenance fees, taxes and insurance which are
generally assessed to us by our landlord.
Beginning in the second quarter of Fiscal 2021, we began to
amortize the deferred contract acquisition costs related to our
acquisition of the AffaMed Agreement, composed of the c
ash
payments of $220,000 for sublicense fees which we were obligated to
make pursuant to our PH94B license from Pherin, and $125,000 of
cash fees and $125,000 fair value of common stock issued for
consulting services, in each case exclusively related to our
acquisition of the AffaMed Agreement. The contract acquisition
costs are amortized over the expected term of the services to be
provided under the AffaMed Agreement. During Fiscal 2021, we
amortized $102,400 of contract acquisition costs.
During Fiscal 2020, we completed three warrant modifications
resulting in an aggregate of $826,900 of noncash warrant
modification expense as described below.
●
On
December 4, 2019, we modified outstanding warrants previously
issued as a part of completed private placements to purchase an
aggregate of approximately 6.6 million unregistered shares of our
common stock to temporarily reduce, for a period of two years or
until the expiration of the warrant, if sooner, the exercise price
of such warrants to $0.50 per share, in order to more closely align
the exercise price of the warrants with the then-current trading
price of our common stock. Following the two-year period during
which the exercise price is reduced, the exercise price will revert
to its pre-modification price. We determined that this modification
increased the fair value of the modified warrants by $702,500,
which we recorded as warrant modification expense.
-76-
●
Also, on December 4, 2019, we issued additional
warrants (the
Additional
Warrants
) to purchase an
aggregate of 325,000 additional shares of our common stock to the
participants in our fall 2019 private placement of shares of common
stock and warrants to increase the number of unregistered shares of
common stock issuable upon exercise of the warrants from 50% to
100% of the number of shares issued in the private placement. The
Additional Warrants are exercisable through March 31, 2024 at an
exercise price of $0.50 per share. We determined that the fair
value of the Additional Warrants was $88,800, which we also
recognized as noncash warrant modification
expense.
●
Further,
on December 19, 2019, we modified additional outstanding warrants
previously issued as a part of a completed private placement to
purchase a total of 80,431 shares of our unregistered common stock
to permanently reduce the exercise price of such warrants to $0.805
per share and to extend the term of such warrants through December
31, 2022, in order to more closely align the exercise price of the
warrants with the then-current trading price of our common stock
and to provide additional time for the holders to exercise the
warrants. We determined that these modifications increased the fair
value of the subject warrants by $35,600, which we also recognized
as noncash warrant modification expense.
The
shares underlying the modified warrants and the Additional Warrants
were included in a Registration Statement on Form S-3 (File No.
333-237968) that was declared effective by the Commission on May
13, 2020.
Interest and Other Income, Net
Interest income, net totaled $1,600 for Fiscal 2021 compared to
interest income, net of $30,100 for Fiscal 2020. The following
table indicates the primary components of interest income and
expense for each of the periods (amounts in
thousands):
|
|
Fiscal
Years Ended March 31,
|
|
|
|
2021
|
2020
|
|
|
|
|
|
Interest
income
|
$
15
|
$
45
|
|
Interest expense on
financing lease, insurance premium financing notes
|
|
|
|
and
Payroll Protection Program loan (2021)
|
(13
)
|
(15
)
|
|
|
|
|
|
Interest income,
net
|
$
2
|
$
30
|
|
|
|
|
In both
periods, interest income relates to cash deposits in
interest-bearing cash equivalent accounts. Although cash balances
were generally higher during Fiscal 2021, the decline in market
interest rates during Fiscal 2021 compared to Fiscal 2020 resulted
in reduced interest income.
Interest
expense in both periods relates to interest paid on insurance
premium financing notes and on our financing lease of office
equipment subject to ASC 842, and in Fiscal 2021, to interest
accrued on our Payroll Protection Program loan prior to its
voluntary repayment, including interest, in December
2020.
We
recognized $1,385,600 and
$1,263,600
in Fiscal 2021 and Fiscal 2020, respectively, representing the 10%
cumulative dividend accrued on outstanding shares of our Series B
10% Convertible Preferred Stock (
Series B
Preferred
) as an additional
deduction in arriving at net loss attributable to common
stockholders in the
Consolidated Statement of Operations and
Comprehensive Loss included in Item 8, Part II of this Annual
Report. In December 2020, one holder of Series B Preferred
converted 28,571 shares of Series B Preferred into an equal number
of unregistered shares of our common stock and we issued an
additional 160,062 unregistered shares of our common stock in
payment of $124,600 of accrued dividends.
The Series D Preferred that we issued in the
December 2020 Public Offering contained a beneficial conversion
feature (a
BCF
), which arises when a debt or equity security is
issued with an embedded conversion option that is deemed beneficial
to the investor, that is, in-the-money, at inception because the
conversion option has an effective conversion price that is less
than the market price of the underlying stock at the commitment
date (with respect to the Series D Preferred, the date the security
was actually issued rather than the date the agreement to do so was
entered into, referred to as the
Commitment
Date
). In accordance with
Accounting Standards Codification 470-20,
Debt- Debt with Conversion and
Other Options
(
ASC 470-20
), an embedded BCF is required to be recognized
separately by allocating a portion of the proceeds equal to the
intrinsic value of the feature to additional paid-in capital. ASC
470-20 also provides that the intrinsic value is to be calculated
as of the Commitment Date. The Series D Certificate of Designation
provides that the Series D Preferred has a conversion price of
$0.92 per share on an as-converted basis the (
Conversion
Price
). The Conversion Price
compared to the closing price of $1.42 per share of our common
stock on the Commitment Date results in a difference of $0.50 per
share. That difference multiplied by the 46 million shares of our
common stock issuable upon conversion of the Series D Preferred
resulted in an aggregate BCF of $23.0 million. We did not recognize
the impact of the BCF at December 31, 2020 because the Series D
Preferred was not convertible into common stock prior to the
Approval Date (the date of our Special Meeting of Stockholders held
on March 5, 2021). Following approval by our stockholders of the
Charter Amendment at the Special Meeting in March 2021, the
contingency of the BCF was eliminated and we recognized the BCF as
a noncash charge in arriving at net loss attributable to common
stockholders in our Consolidated Statement of Operations and
Comprehensive Loss for the fiscal year ended March 31, 2021 and as
a corresponding increase in additional paid-in capital in our
Consolidated Statement of Stockholders’ Equity (Deficit). The
recognition of the BCF on the Series D Preferred had no impact in
aggregate on our stockholders’ equity or on our cash
position.
-77-
Liquidity and Capital Resources
Since our inception in May 1998 through March 31, 2021, 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 $197.8 million, as well as from an
aggregate of approximately $22.7 million of government research
grant awards (excluding the fair market value of government
sponsored and funded clinical trials), strategic collaboration
payments, intellectual property licensing and other revenues.
Additionally, we have issued equity securities with an approximate
value at issuance of $38.2
million in noncash acquisitions of product
licenses and in settlements of certain liabilities, including
liabilities for professional services rendered to us or as
compensation for such services.
Recent Developments
Jefferies ATM
. On May 14, 2021,
we entered into an Open Market Sale Agreement
SM
(the
Sales
Agreement
) with Jefferies LLC,
as sales agent (
Jefferies
), with respect to an at-the-market offering
program under which we may offer and sell, from time to time,
shares of our common stock with an aggregate offering price of up
to $75.0 million through Jefferies as our sales agent. As of the
date of this Report, we have not completed any sales under the Sale
Agreement.
December 2020 Public Offering
.
In December 20
20, we entered into an underwriting agreement
(the
December 2020 Underwriting
Agreement
) pursuant to which we sold 63,000,000 shares of
our common stock in the December 2020 Public Offering at a public
offering price of $0.92 per share and 2,000,000 shares
of
Series D
Preferred
at a public
offering price of $21.16 per share, resulting in gross proceeds to
us of $100 million. Net proceeds to us from the securities sold in
the December 2020 Public Offering, after deducting underwriting
discounts and commissions and offering expenses payable by us, was
approximately $93.6 million. Following approval by our stockholders
of the Charter Amendment at the Special Meeting in March 2021 and
through the date of this Annual Report, we issued 46 million shares
of our common stock upon conversion of all outstanding shares of
Series D Preferred issued in the December 2020 Public
Offering.
August 2020 Public Offering
. In
August 2020, we entered into an underwriting agreement pursuant to
which we sold, in the August 2020 Public Offering an underwritten
public offering (the
August 2020 Public
Offering
), an aggregate of
15,625,000 shares of our common stock at a public offering price of
$0.80 per share, resulting in gross proceeds to us of $12,500,000.
Under the terms of the August 2020 Underwriting Agreement, we
granted to the underwriter an over-allotment option
(the
Over-Allotment
Option
) to purchase up to an
additional 2,343,750 shares of common stock at a public offering
price of $0.80 per share. The underwriter exercised the
Over-Allotment Option with respect to 2,243,250 shares (the
Exercised Option
Shares
), resulting in
additional gross proceeds to us of $1,794,600. Aggregate net
proceeds to us from the August 2020 Public Offering, after
deducting underwriting discounts and commissions and offering
expenses payable by us, was approximately $12.9
million.
AffaMed Agreement
.
In June 2020, we entered into the AffaMed Agreement, a strategic
licensing and collaboration agreement for the clinical development
and commercialization of PH94B for acute treatment of anxiety in
adults with SAD and other potential anxiety-related disorders, with
EverInsight, now operating as
AffaMed Therapeutics.
Under the terms of the
AffaMed Agreement, AffaMed agreed to make a non-dilutive upfront
license payment of $5.0 million to us, which we received in August
2020. The $5.0 million upfront license payment resulted in net cash
proceeds to us of approximately $4.655 million after the sublicense
payment we agreed to make to Pherin pursuant to our PH94B license
from Pherin, and payment for consulting services related to the
AffaMed Agreement.
LPC Agreement
. Additionally, on
March 24, 2020, we entered into the LPC Agreement with Lincoln
Park, pursuant to which Lincoln Park committed to purchase up to
$10,250,000 of our common stock at market-based prices over a
period of 24 months. To satisfy our obligations under the
registration rights agreement, we filed the LPC Registration
Statement, which the SEC declared effective on April 14, 2020
(Registration No. 333-237514). Subsequent to the effectiveness of
the LPC Registration Statement and through July 2020, we sold
6,301,995 registered shares of our common stock to Lincoln Park and
received gross cash proceeds of $2,891,200. We have not sold any
shares of our common stock pursuant to the Lincoln Park Agreement
since July 2020.
Warrant Exercises
.
Further, between December 2020 and March 31, 2021, certain holders
of outstanding warrants exercised such warrants to purchase an
aggregate of 6,396,302 shares of our common stock and we received
cash proceeds of $4,924,800 from such exercises. Since March 31,
2021 and through the date of this Annual Report, holders of
outstanding warrants have exercised warrants to purchase an
additional
1,508,768
shares
of our common stock and we have received cash proceeds of
approximately
$1,105,700
,
resulting in aggregate cash proceeds of $6,030,500 received from
warrant exercises between December 2020 and the date of this Annual
Report.
Liquidity and Capital Resources
During Fiscal 2021, we received approximately $119 million in net
cash proceeds from the transactions described above. At March 31,
2021, we had cash and cash equivalents of approximately $103.1
million, which we believe is sufficient to fund our planned
operations for well beyond the twelve months following the issuance
of the financial statements included in Part II, Item 8 of this
Annual Report, and indicating our ability to continue as a going
concern. Nevertheless, we have not yet developed products that
generate recurring revenue and, assuming successful completion of
our planned clinical and nonclinical programs, we will need to
invest substantial additional capital resources to commercialize
any of them.
-78-
During the next twelve months, we plan
to (i) continue PALISADE-1 and prepare for and initiate
multiple studies in our PALISADE
Phase
3 program for development and commercialization of PH94B as an
acute treatment of anxiety in adult patients with SAD, (ii) prepare
for and initiate multiple small exploratory
Phase 2A studies
of PH94B in additional anxiety disorders, (iii) prepare for and
initiate a Phase 2B clinical study of PH10 as a potential
stand-alone treatment for MDD, (iv) prepare for and initiate a
Phase 1B clinical study of AV-101 in combination with probenecid to
enable assessment of potential exploratory Phase 2A development of
the combination in MDD and certain neurological disorders,
and (v) conduct nonclinical studies
involving PH94B, PH10 and AV-101.
Although we believe our current cash position is sufficient to fund
our planned operations for well beyond the next twelve months, when
necessary and advantageous, we may raise additional capital through
the sale of our equity securities in one or more (i) public
offerings (ii) private placements to accredited investors, and/or
(iii) in strategic licensing and development collaborations
involving one or more of our drug candidates in markets outside the
United States, similar to the AffaMed Agreement. Subject to certain
restrictions, our Registration Statement on Form S-3 (Registration
No. 333-254299) (the
S-3 Registration
Statement
), which became
effective on March 26, 2021 remains available for future sales of
our equity securities under the Sales Agreement with Jefferies, or
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.
In addition to the potential sale of our equity securities, we may
also seek to enter research, development and/or commercialization
collaborations similar to the AffaMed Agreement and the Bayer
Agreement to provide funding, including non-dilutive funding, for
development of one or more of our CNS product candidate programs.
We may also seek additional government grant awards or agreements
similar to our prior agreement with the U.S. National Institutes of
Health (
NIH
), Baylor University and the U.S. Department of
Veterans Affairs in connection with certain government-sponsored
studies of AV-101. Such strategic collaborations may provide
non-dilutive resources to advance our strategic initiatives while
reducing a portion of our future cash outlays and working capital
requirements. We may also pursue intellectual property arrangements
similar to the AffaMed Agreement and the Bayer Agreement with other
parties. Although we may seek additional collaborations that could
generate revenue and/or provide non-dilutive funding for
development of our product candidates, as well as new government
grant awards and/or agreements, no assurance can be provided that
any such collaborations, awards or agreements will occur in the
future.
Our future working capital requirements will depend on many
factors, including, without limitation, potential impacts related
to the continuing COVID-19 pandemic, the scope and nature of
opportunities related to our success and the success of certain
other companies in nonclinical and clinical trials, including our
development and commercialization of our current product candidates
and various applications of our stem cell technology platform, the
availability of, and our ability to obtain, government grant awards
and agreements, and our ability to enter into collaborations on
terms acceptable to us. To further advance the clinical development
of PH94B, PH10, and AV-101 and, to a lesser extent, our stem cell
technology platform, as well as support our operating activities,
we plan to continue to carefully manage our routine operating
costs, including our employee headcount and related expenses, as
well as costs relating to regulatory consulting, contract
manufacturing, research and development, investor and public
relations, business development, legal, intellectual property
acquisition and protection, public company compliance and other
professional services and operating costs.
Notwithstanding the foregoing, there can be no assurance that our
current strategic collaborations under the AffaMed Agreement and/or
the Bayer Agreement will generate revenue from future potential
milestone payments, or that future financings or government or
other strategic collaborations will be available to us in
sufficient amounts, in a timely manner, or on terms acceptable to
us, if at all. If we are unable to obtain additional financing on a
timely basis when needed, our business, financial condition, and
results of operations may be harmed, the price of our stock may
decline, we may be required to reduce, defer, or discontinue
certain of our research and development activities and we may not
be able to continue as a going concern. As noted above, 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.
-79-
Cash and Cash Equivalents
The following table summarizes changes in cash and cash equivalents
for the fiscal years stated (in thousands):
|
|
Fiscal
Years Ended March 31,
|
|
|
|
2021
|
2020
|
|
|
|
|
|
Net cash used in
operating activities
|
$
(12,074
)
|
$
(15,757
)
|
|
Net cash used in
investing activities
|
(275
)
|
-
|
|
Net cash provided
by financing activities
|
114,102
|
4,012
|
|
|
|
|
|
Net increase
(decrease) in cash and cash equivalents
|
101,753
|
(11,745
)
|
|
Cash and cash
equivalents at beginning of period
|
1,355
|
13,100
|
|
Cash and cash
equivalents at end of period
|
$
103,108
|
$
1,355
|
The decrease in cash used in operations results primarily from
increased spending on PH94B and PH10 nonclinical development,
manufacturing advancements, and, for PH94B in particular, Phase
3-enabling initiatives as a part of our preparations for the
PALISADE Phase 3 program, combined with expansion of our
infrastructure by the addition of experienced senior-level
executives in manufacturing, clinical and regulatory disciplines in
the fourth quarter of Fiscal 2021, offset by the impact of the
completion of the Elevate Study, which commenced at the end of the
first calendar quarter of 2018 and was operationally completed
during the third fiscal quarter of Fiscal 2020. Additionally, cash
used in operations during Fiscal 2021 was reduced by the August
2020 receipt of the $5.0 million nondilutive upfront payment from
EverInsight under the AffaMed Agreement. Cash used in investing
activities in Fiscal 2021 primarily reflects the purchase of
certain manufacturing equipment acquired for use by our
contract development and manufacturing organization
in connection with the production of PH94B drug
product. Cash provided by financing activities in Fiscal 2021
primarily reflects net cash proceeds to us from sales of our common
stock and Series D Preferred stock pursuant to the December 2020
Public Offering and from sales of our common stock pursuant to the
August 2020 Public Offering, the LPC Agreement and the Spring 2020
Private Placement, as well as from the exercise of outstanding
warrants, net of routine insurance premium financing note and
financing lease payments. We received a Payroll Protection Program
loan in April 2020 and voluntarily repaid all principal and accrued
interest on the loan in December 2020, following the completion of
the December 2020 Public Offering. Cash provided by financing
activities in Fiscal 2020 reflects the cash proceeds from our Fall
2019 Private Placement, our Fall 2019 Warrant Offering, the
exercise of certain warrants following the modification of their
exercise prices, proceeds from our January 2020 Registered Direct
Offering and initial transactions under the LPC Agreement, net of
routine payments on our insurance premium financing notes and
lease.
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.
-80-
Item 8.
F
inancial Statements and
Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Page
|
|
82
|
|
|
84
|
|
|
85
|
|
|
86
|
|
|
87
|
|
|
88
|
-81-
R
EPORT 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. (the “Company”) as of March 31, 2021
and 2020, the related consolidated statements of operations and
comprehensive loss, cash flows, and stockholders’ equity
(deficit) for each of the two fiscal years in the period ended
March 31, 2021, 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, 2021 and 2020, and
the results of its operations and its cash flows for each of the
two years in the period ended March 31, 2021
,
in conformity with accounting
principles generally accepted in the United States of
America.
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.
Critical Audit Matter
The
critical audit matter communicated below is a matter arising from
the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit
committee and that: (1) relates to accounts or disclosures that are
material to the consolidated financial statements; and (2) involved
our especially challenging, subjective, or complex judgments. The
communication of the critical audit matter does not alter in any
way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matter
below, providing separate opinions on the critical audit matter or
on the accounts or disclosures to which it relates.
Revenues from Contracts with Customers
Description of the Matter
‒
License Agreement with
AffaMed
As
discussed in Note 12 to the consolidated financial statements, the
Company recognized approximately $1.1 million in revenue under the
license agreement with AffaMed Therapeutics. Inc.
(“AffaMed”) during the fiscal year ended March 31,
2021. The Company evaluated each of the deliverables identified in
the license agreement and determined the license is not distinct
within the context of the contract and is combined with development
and regulatory approval services; as such, the Company combined the
license and promised services into one combined performance
obligation.
-82-
Auditing
management’s identification of performance obligations was
challenging as the license agreement includes implicit and explicit
obligations. Significant judgment was required in the evaluation of
the identification of performance obligations and in the
determination of whether the identified license and promised
services meet the criteria of being distinct and capable of being
distinct within the context of the contract. The Company’s
revenue from its licensing agreement is recognized over time, as
the combined performance obligation is satisfied.
We
identified license revenue recognition as a critical audit matter
because of the judgments necessary for management to: identify
performance obligations, determine variable consideration, and
determine the timing of recognition for such revenue. Because of
the complexity associated with applying the recognition criteria of
ASC 606, notably related to identification of performance
obligations, determination of variable consideration, and
determination of timing of revenue recognition, this required
extensive audit effort and a high degree of auditor judgment when
performing audit procedures and evaluating the results of those
procedures.
How the Critical Audit Matter Was Addressed in the
Audit
Our
audit procedures related to the recognition of license revenue,
included the following, among others:
●
We evaluated the
Company’s revenue recognition for the license agreement
through an inspection of the agreement and an evaluation of
management’s revenue recognition analysis corresponding to
the license agreement. Our objective was to validate that revenue
from the license agreement was recognized in a manner commensurate
with the terms of the established agreement and the relevant
accounting guidance. Evaluating the reasonableness of
management’s accounting conclusions involved:
●
Evaluating the
accuracy and completeness of the performance obligations identified
by management in the license agreement. Management identified one
combined performance obligation. We analyzed the license agreement
to determine if the arrangement terms that may have an impact on
revenue recognition were identified and properly considered in the
evaluation of the accounting for the contract. We also inquired of
management, and reviewed source documentation, to assess whether
the one combined performance obligation identified by management
was complete and whether the license and promised services within
it were both capable of being distinct and distinct within the
context of the contract.
●
Determining the
reasonableness of the amounts of variable consideration included
within the total transaction price. We analyzed the nature of the
combined performance obligation and the contingencies related to
the variable consideration in assessing management’s methods
in estimating the amount of variable consideration to be included
in the total transaction price.
●
Testing the
measurement of efforts toward satisfaction of the combined
performance obligation which included, among other
procedures:
●
Reviewing
management’s revenue schedules for accuracy and completeness
by agreeing data to the underlying agreement.
●
Evaluating the
manner in which the combined performance obligation was satisfied,
and corroborating management estimates and judgments through a
review of press releases and third-party data as a potential source
of corroborating or contradictory evidence.
●
Discussing
management’s judgments with the Company’s research and
development personnel that oversee aspects of the license
agreement.
/s/ OUM & CO. LLP
San Francisco, California
June 29, 2021
We have served as the Company's auditor since 2006.
-83-
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED
B
ALANCE SHEETS
(Amounts in dollars, except share amounts)
|
|
March
31,
|
March 31,
|
|
|
2021
|
2020
|
|
|
|
|
|
|
|
|
|
ASSETS
|
||
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
103,108,300
|
$
1,355,100
|
|
Receivable from
collaboration partner
|
40,600
|
-
|
|
Prepaid expenses
and other current assets
|
835,100
|
225,100
|
|
Deferred contract
acquisition costs - current portion
|
133,500
|
-
|
|
Total current
assets
|
104,117,500
|
1,580,200
|
|
Property and
equipment, net
|
367,400
|
209,600
|
|
Right of use asset
- operating lease
|
3,219,600
|
3,579,600
|
|
Deferred offering
costs
|
294,900
|
355,100
|
|
Deferred contract
acquisition costs - non-current portion
|
234,100
|
-
|
|
Security deposits
and other assets
|
47,800
|
47,800
|
|
Total
assets
|
$
108,281,300
|
$
5,772,300
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
||
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
838,300
|
$
1,836,600
|
|
Accrued
expenses
|
1,562,700
|
561,500
|
|
Current notes
payable
|
-
|
56,500
|
|
Deferred revenue -
current portion
|
1,420,200
|
-
|
|
Operating lease
obligation - current portion
|
364,800
|
313,400
|
|
Financing lease
obligation - current portion
|
3,000
|
3,300
|
|
Total current
liabilities
|
4,189,000
|
2,771,300
|
|
|
|
|
|
Non-current
liabilities:
|
|
|
|
Accrued dividends
on Series B Preferred Stock
|
6,272,700
|
5,011,800
|
|
Deferred revenue -
non-current portion
|
2,490,300
|
-
|
|
Operating lease
obligation - non-current portion
|
3,350,800
|
3,715,600
|
|
Financing lease
obligation - non-current portion
|
-
|
3,000
|
|
Total non-current
liabilities
|
12,113,800
|
8,730,400
|
|
Total
liabilities
|
16,302,800
|
11,501,700
|
|
|
|
|
|
Commitments
and contingencies (Note 15)
|
|
|
|
|
|
|
|
Stockholders’
equity (deficit):
|
|
|
|
Preferred stock,
$0.001 par value; 10,000,000 shares authorized at March 31, 2021
and 2020:
|
|
|
|
Series A Preferred,
500,000 shares authorized, issued and outstanding at March 31, 2021
and 2020
|
500
|
500
|
|
Series B Preferred;
4,000,000 shares authorized at March 31, 2021 and 2020; 1,131,669
shares
|
|
|
|
and 1,160,240
shares issued and outstanding at March 31, 2021 and 2020,
respectively
|
1,100
|
1,200
|
|
Series C Preferred;
3,000,000 shares authorized at March 31, 2021 and 2020; 2,318,012
shares
|
|
|
|
issued and
outstanding at March 31, 2021 and 2020
|
2,300
|
2,300
|
|
Series D Preferred;
2,000,000 shares and no shares authorized at March 31, 2021 and
2020, respectively;
|
|
|
|
402,149 shares and
no shares issued and outstanding at March 31, 2021 and March 31,
2020, respectively
|
400
|
-
|
|
Common stock, $0.001 par
value; 325,000,000 shares and 175,000,000 shares authorized at
March 31, 2021 and 2020, respectively;
180,751,234 and 49,348,707 shares
issued at March 31, 2021 and 2020, respectively
|
180,800
|
49,300
|
|
Additional paid-in
capital
|
315,603,100
|
200,092,800
|
|
Treasury stock, at
cost, 135,665 shares of common stock held at March 31, 2021 and
2020
|
(3,968,100
)
|
(3,968,100
)
|
|
Accumulated
deficit
|
(219,841,600
)
|
(201,907,400
)
|
|
Total
stockholders’ equity (deficit)
|
91,978,500
|
(5,729,400
)
|
|
Total liabilities
and stockholders’ equity (deficit)
|
$
108,281,300
|
$
5,772,300
|
See accompanying notes to consolidated financial
statements.
-84-
VISTAGEN THERAPEUTICS, INC.
(Amounts in dollars, except share amounts)
|
|
Fiscal
Years Ended March 31,
|
|
|
|
2021
|
2020
|
|
Sublicense
revenue
|
$
1,089,500
|
$
-
|
|
Total
revenues
|
1,089,500
|
-
|
|
Operating
expenses:
|
|
|
|
Research and
development
|
12,476,400
|
13,374,200
|
|
General and
administrative
|
6,546,900
|
7,427,300
|
|
Total
operating expenses
|
19,023,300
|
20,801,500
|
|
Loss from
operations
|
(17,933,800
)
|
(20,801,500
)
|
|
Other income and
expenses, net:
|
|
|
|
Interest
income, net
|
1,600
|
30,100
|
|
Other
income
|
600
|
-
|
|
Loss before income
taxes
|
(17,931,600
)
|
(20,771,400
)
|
|
Income
taxes
|
(2,600
)
|
(2,600
)
|
|
Net loss and
comprehensive loss
|
$
(17,934,200
)
|
$
(20,774,000
)
|
|
|
|
|
|
Accrued
dividends on Series B Preferred stock
|
(1,385,600
)
|
(1,263,600
)
|
|
Beneficial
conversion feature on Series D
|
|
|
|
Preferred
stock
|
(23,000,000
)
|
-
|
|
Net loss
attributable to common stockholders
|
$
(42,319,800
)
|
$
(22,037,600
)
|
|
|
|
|
|
Basic and diluted
net loss attributable to common
|
|
|
|
stockholders
per common share
|
$
(0.49
)
|
$
(0.50
)
|
|
|
|
|
|
Weighted average
shares used in computing
|
|
|
|
basic and
diluted net loss attributable to common
|
|
|
|
stockholders
per common share
|
86,133,644
|
43,869,523
|
See accompanying notes to consolidated financial
statements.
-85-
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF
C
ASH
FLOWS
(Amounts in dollars)
|
|
Fiscal
Years Ended March 31,
|
|
|
|
2021
|
2020
|
|
Cash flows
from operating activities:
|
|
|
|
Net
loss
|
$
(17,934,200
)
|
$
(20,774,000
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
Depreciation
and amortization
|
117,600
|
103,100
|
|
Stock-based
compensation
|
2,306,100
|
3,820,800
|
|
Expense
related to modification of warrants
|
-
|
826,900
|
|
Amortization
of fair value of common stock issued for services
|
-
|
92,100
|
|
Amortization
of fair value of warrants issued for services
|
-
|
13,800
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Receivable
from collaboration partner or supplier
|
(40,600
)
|
300,000
|
|
Prepaid
expenses and other current assets
|
(287,800
)
|
182,600
|
|
Right
of use asset - operating lease
|
360,000
|
335,400
|
|
Operating
lease liability
|
(313,500
)
|
(267,000
)
|
|
Deferred
sublicense revenue, net of deferred contract acquisition
costs
|
3,667,900
|
-
|
|
Accounts
payable and accrued expenses
|
51,000
|
(390,700
)
|
|
Net
cash used in operating activities
|
(12,073,500
)
|
(15,757,000
)
|
|
|
|
|
|
Cash flows
from property and investing activities:
|
|
|
|
Purchases
of manufacturing and other equipment
|
(275,400
)
|
-
|
|
Net
cash used in investing activities
|
(275,400
)
|
-
|
|
|
|
|
|
Cash flows
from financing activities:
|
|
|
|
Net
proceeds from issuance of common stock and Series D Preferred
stock
|
93,675,200
|
-
|
|
Net
proceeds from issuance of common stock and warrants, including
Units
|
12,957,800
|
3,349,000
|
|
Net
proceeds from exercise of warrants
|
5,009,500
|
410,000
|
|
Proceeds
from sale of warrants
|
-
|
300,000
|
|
Net
proceeds from sale of common stock under equity line
|
2,841,600
|
249,400
|
|
Proceeds
from issuance of note under Payroll Protection Plan
|
224,400
|
-
|
|
Repayment
of capital lease obligations
|
(3,300
)
|
(3,000
)
|
|
Repayment
of notes payable, including Payroll Protection Plan
note
|
(603,100
)
|
(293,600
)
|
|
Net
cash provided by financing activities
|
114,102,100
|
4,011,800
|
|
Net increase
(decrease) in cash and cash equivalents
|
101,753,200
|
(11,745,200
)
|
|
Cash and cash
equivalents at beginning of period
|
1,355,100
|
13,100,300
|
|
Cash and cash
equivalents at end of period
|
$
103,108,300
|
$
1,355,100
|
|
|
|
|
|
Supplemental
disclosure of cash flow activities:
|
|
|
|
Cash
paid for interest
|
$
13,300
|
$
14,800
|
|
Cash
paid for income taxes
|
$
2,600
|
$
2,600
|
|
|
|
|
|
Supplemental
disclosure of noncash activities:
|
|
|
|
Insurance
premiums settled by issuing note payable
|
$
322,200
|
$
292,800
|
|
Accrued
dividends on Series B Preferred
|
$
1,385,600
|
$
1,263,600
|
|
Accrued
dividends on Series B Preferred settled upon conversion by
issuance
|
|
|
|
of
common stock
|
$
124,600
|
$
-
|
See accompanying notes to consolidated financial
statements.
-86-
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
E
QUITY (DEFICIT)
Fiscal Years Ended March 31, 2020 and 2021
(Amounts in dollars, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Total
|
|
|
Series A
Preferred Stock
|
Series B
Preferred Stock
|
Series C
Preferred Stock
|
Series D
Preferred Stock
|
Common
Stock
|
Paid-in
|
Treasury
|
Accumulated
|
Stockholders’
|
|||||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Stock
|
Deficit
|
Equity
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of units of common stock and
warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for cash in private placements
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
650,000
|
600
|
649,400
|
-
|
-
|
650,000
|
|
Proceeds from sale of warrants in private placement
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
300,000
|
-
|
-
|
300,000
|
|
Proceeds from sale of units of common stock and
warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for cash in public offering and concurrent private
placement
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
3,870,077
|
3,900
|
2,695,100
|
-
|
-
|
2,699,000
|
|
Issuance of commitment shares and net proceeds of
initial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sale of common stock under equity line
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,250,000
|
1,200
|
525,100
|
-
|
-
|
526,300
|
|
Proceeds from exercise of warrants
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
820,000
|
800
|
409,200
|
-
|
-
|
410,000
|
|
Accrued dividends on Series B Preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,263,600
)
|
-
|
-
|
(1,263,600
)
|
|
Stock-based compensation expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
3,820,800
|
-
|
-
|
3,820,800
|
|
Increase in fair value attributed to warrant
modifications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
and additional warrants issued
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
826,900
|
-
|
-
|
826,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Net loss for the fiscal year ended March 31, 2020
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(20,774,000
)
|
(20,774,000
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2020
|
500,000
|
$
500
|
1,160,240
|
$
1,200
|
2,318,012
|
$
2,300
|
-
|
$
-
|
49,348,707
|
$
49,300
|
$
200,092,800
|
$
(3,968,100
)
|
$
(201,907,400
)
|
$
(5,729,400
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from sale of common stock under equity
line
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
6,301,995
|
6,300
|
2,790,500
|
-
|
-
|
2,796,800
|
|
Net proceeds from sale of common stock in public
offering
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
17,868,250
|
17,900
|
12,887,200
|
-
|
-
|
12,905,100
|
|
Net proceeds from sale of common stock and Series D
Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock in public offering
|
-
|
-
|
-
|
-
|
-
|
-
|
2,000,000
|
2,000
|
63,000,000
|
63,000
|
93,582,900
|
-
|
-
|
93,647,900
|
|
Net proceeds from exercise of warrants
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
6,624,302
|
6,600
|
5,002,900
|
-
|
-
|
5,009,500
|
|
Comversion of Series D Preferred stock to common stock
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,597,851
)
|
(1,600
)
|
36,750,573
|
36,800
|
(35,200
)
|
-
|
-
|
-
|
|
Comversion of Series B Preferred stock to common stock and
payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of accrued dividends in common stock
|
-
|
-
|
(28,571
)
|
(100
)
|
-
|
-
|
-
|
-
|
188,633
|
200
|
124,500
|
-
|
-
|
124,600
|
|
Accrued dividends on Series B Preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,385,600
)
|
-
|
-
|
(1,385,600
)
|
|
Stock-based compensation expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
2,306,100
|
-
|
-
|
2,306,100
|
|
Sale of common stock pursuant to 2019 Employee Stock Purchase
Plan
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
58,125
|
100
|
26,100
|
-
|
-
|
26,200
|
|
Issuance of common stock upon cashless exercise of stock
options
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
222,004
|
200
|
(200
)
|
-
|
-
|
-
|
|
Net proceeds from exercise of stock options for cash
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
30,000
|
-
|
36,500
|
|
|
36,500
|
|
Issuance of common stock at fair value for professional
services
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
233,645
|
200
|
124,800
|
-
|
-
|
125,000
|
|
Beneficial conversion feature on Series D Preferred
stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
23,000,000
|
-
|
-
|
23,000,000
|
|
Deemed dividend from beneficial conversion feature of Series D
Preferred Stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(23,000,000)
|
-
|
-
|
(23,000,000)
|
|
Net loss for the fiscal year ended March 31, 2021
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
-
|
(17,934,200
)
|
(17,934,200
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2021
|
500,000
|
$
500
|
1,131,669
|
$
1,100
|
2,318,012
|
$
2,300
|
402,149
|
$
400
|
180,751,234
|
$
180,800
|
$
315,603,100
|
$
(3,968,100
)
|
$
(219,841,600
)
|
$
91,978,500
|
See accompanying notes to consolidated financial
statements.
-87-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
D
escription of
Business
Overview
VistaGen Therapeutics,
Inc., a Nevada corporation
(which may be referred to as
VistaGen
, the
Company
,
we
,
our
, or
us
),
is
a biopharmaceutical company committed to
developing and commercializing differentiated new generation
medications that go beyond the current standard of care for
widespread anxiety, depression and other central nervous system
(
CNS
) disorders. Our CNS pipeline includes three CNS
product candidates, PH94B Nasal Spray, PH10 Nasal Spray and AV-101,
each with a differentiated profile, favorable safety results
observed in all clinical studies to date and therapeutic potential
in multiple CNS indications. PH94B Nasal Spray (
PH94B
) is being developed for multiple anxiety
disorders. We recently initiated our PH94B Phase 3 development
program, which we refer to as the PALISADE program, with
PALISADE-1, a U.S., multi-center, randomized, double-blind,
placebo-controlled Phase 3 clinical study to evaluate the efficacy
and safety of PH94B for the acute treatment of anxiety in adults
with social anxiety disorder (
SAD
), as well as preparations for the additional
studies required to support our potential U.S. New Drug Application
(
NDA
) for that indication should the PALISADE Phase 3
program be successful. We are also preparing for exploratory Phase
2A clinical studies of PH94B in adults experiencing several other
anxiety disorders. PH10 Nasal Spray (
PH10
) is being developed as a stand-alone treatment
for multiple depression disorders. Exploratory Phase 2A clinical
development of PH10 for major depressive disorder
(
MDD
) has been completed. We are now preparing for
planned Phase 2B clinical development of PH10 for this indication.
We are preparing for a Phase 1B clinical study of AV-101 in
combination with probenecid to assess potential future Phase 2A
clinical development of the combination for MDD or certain
neurological indications. Our goal is to become a biopharmaceutical
company that develops and commercializes innovative CNS therapies
for highly prevalent neuropsychiatry and neurology indications
where current treatments options are inadequate to meet the needs
of millions of patients in markets worldwide.
Our Product Candidates
PH94B
is a synthetic investigational neurosteroid developed from
proprietary compounds called pherines. With its novel mechanism of
action, PH94B is an odorless nasal spray administered at
microgram-level doses to achieve rapid-onset anti-anxiety, or
anxiolytic, effects. The pharmacological activity of PH94B is
fundamentally differentiated from that of all FDA-approved
anti-anxiety drugs, including all antidepressants approved by the
U.S. Food and Drug Administration (
FDA
) for treatment of SAD, as well as
all benzodiazepines and beta blockers prescribed on an off-label
basis. PH94B engages peripheral chemosensory receptors in nasal
passages that trigger a subset of neurons in the main olfactory
bulbs (
OB
) at the base of
the brain. The OB neurons then stimulate inhibitory GABAergic
neurons in the limbic amygdala, decreasing the activity of the
sympathetic nervous system, and facilitating fear extinction
activity of the limbic-hypothalamic system, the main fear and
anxiety center in the brain, as well as in other parts of the
brain. Importantly, PH94B does not require systemic uptake and
distribution to produce its rapid-onset anti-anxiety effects.
Our ongoing PALISADE Phase 3 program
for PH94B is designed to further demonstrate its potential as a
fast-acting, non-sedating, non-addictive acute treatment of anxiety
in adults with SAD. We believe PH94B also has potential to be
developed as a novel treatment for adjustment disorder with
anxiety, postpartum anxiety, post-traumatic stress disorder,
procedural anxiety, panic and other anxiety disorders. PH94B has
been granted Fast Track designation status by the FDA for
development for the acute treatment of SAD.
PH10 is
a synthetic investigational neurosteroid, which also was developed
from proprietary compounds called pherines. Its novel, rapid-onset
mechanism of action (
MOA
)
is fundamentally differentiated from the MOA of all current
treatments for MDD and other depression disorders. PH10 is
self-administered at microgram-level doses as an odorless nasal
spray. PH10 activates nasal chemosensory cells in the nasal
passages, connected to neural circuits in the brain that produce
antidepressant effects. Specifically, PH10 engages peripheral
chemosensory receptors in the nasal passages that trigger a subset
of neurons in the main OB that stimulate neurons in the limbic
amygdala. This is turn increases activity of the
limbic-hypothalamic sympathetic nervous system and increases the
release of catecholamines. Importantly, unlike all currently
approved oral antidepressants (
ADs
), PH10 does not require systemic
uptake and distribution to produce rapid-onset of antidepressant
effects. In all clinical studies to date, PH10 has not caused
psychological side effects (such as dissociation and
hallucinations) or safety concerns that may be associated with
rapid-onset ketamine-based therapy (
KBT
), including intravenous ketamine or
intranasal ketamine (esketamine).
We
believe PH10 has potential to be a new stand-alone treatment for
MDD and several other depression disorders.
AV-101 (4-Cl-KYN) targets the NMDAR (N-methyl-D-aspartate
receptor), an ionotropic glutamate receptor in the brain. Abnormal
NMDAR function is associated with numerous CNS diseases and
disorders. AV-101 is an oral prodrug of 7-chloro-kynurenic acid
(7-Cl-KYNA), which is a potent and selective full antagonist of the
glycine co-agonist site of the NMDAR that inhibits the function of
the NMDAR. However, unlike ketamine and many other NMDAR
antagonists, 7-Cl-KYNA is not an ion channel blocker. At doses
administered in all studies to date, AV-101 has been observed to be
well tolerated and has not exhibited dissociative or hallucinogenic
psychological side effects or safety concerns. In light of these
observations and findings from preclinical studies, we believe that
AV-101, in combination with FDA-approved probenecid, has potential
to become a new oral treatment alternative for certain CNS
indications involving the NMDAR. We are currently preparing to
evaluate AV-101 in combination with probenecid in a Phase 1B
clinical study. The FDA has granted Fast Track designation for
development of AV-101 as a potential adjunctive treatment for MDD
and as a non-opioid treatment for neuropathic pain
(
NP
).
-88-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subsidiaries
VistaGen Therapeutics, Inc., a California corporation d/b/a
VistaStem (
VistaStem
),is our wholly-owned subsidiary. Our Consolidated
Financial Statements in this Annual Report on Form 10-K
(
Annual
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 $242.8 million accumulated from
inception (May 1998) through March 31, 2021. We expect losses and
negative cash flows from operations to continue for the foreseeable
future as we engage in further development of PH94B, PH10 and
AV-101.
Since our inception in May 1998 through March 31, 2021, 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 $197.8 million, as well as from an
aggregate of approximately $22.7 million of government research
grant awards (excluding the fair market value of government
sponsored and funded clinical trials), strategic collaboration
payments, intellectual property licensing and other revenues.
Additionally, we have issued equity securities with an approximate
value at issuance of $38.2
million in noncash acquisitions of product
licenses and in settlements of certain liabilities, including
liabilities for professional services rendered to us or as
compensation for such services.
Recent Developments
As described more completely in Note 9,
Capital
Stock
, in December 20
20,
we entered into an underwriting agreement (the
December 2020 Underwriting Agreement
)
pursuant to which we sold, in an underwritten public offering (the
December 2020 Public
Offering
), 63,000,000 shares of our common stock at a public
offering price of $0.92 per share and 2,000,000 shares of a newly
issued series of convertible preferred stock (
Series D Preferred)
and, together with
the common stock, the
Securities
) at a public offering price
of $21.16 per share, resulting in gross proceeds to us of $100
million. Net proceeds to us from the securities sold in the
December 2020 Public Offering, after deducting underwriting
discounts and commissions and offering expenses payable by us, was
approximately $93.6 million.
As also described more completely in Note 9,
Capital
Stock
, in August 2020, we
entered into an underwriting agreement (the August 2020
Underwriting
Agreement
) pursuant to which we
sold, in an underwritten public offering (the
August 2020 Public
Offering
), an aggregate of
15,625,000 shares of our common stock at a public offering price of
$0.80 per share, resulting in gross proceeds to us of $12,500,000.
Under the terms of the August 2020 Underwriting Agreement, we
granted to the underwriter an over-allotment option
(the
Over-Allotment
Option
) to purchase up to an
additional 2,343,750 shares of common stock at a public offering
price of $0.80 per share. The underwriter exercised the
Over-Allotment Option with respect to 2,243,250 shares (the
Exercised Option
Shares
), resulting in
additional gross proceeds to us of $1,794,600. Aggregate net
proceeds to us from the August 2020 Public Offering, after
deducting underwriting discounts and commissions and offering
expenses payable by us, were approximately $12.9
million.
As more completely described in Note 12,
Licensing,
Sublicensing and Collaboration Agreements
, in June 2020, we entered into a
strategic licensing and collaboration agreement for the clinical
development and commercialization of PH94B for acute treatment of
anxiety in adults with SAD and other potential anxiety-related
disorders (the
EverInsight
Agreement
), with
EverInsight Therapeutics Inc.,
(
EverInsight
),
a biopharmaceutical company focused on
developing and commercializing transformative pharmaceutical
products for patients in Greater China and other parts of
Asia,
and funded by CBC Group, a global healthcare-focused
venture capital firm. Subsequent to entering into the EverInsight
Agreement, in October 2020, EverInsight merged with AffaMed
Therapeutics, also funded by CBC Group, which as a combined,
complementary entity is focusing on developing and commercializing
therapeutics to address ophthalmologic and CNS disorders in Greater
China and beyond. Accordingly, we are now referring to EverInsight
and the EverInsight Agreement as AffaMed and the AffaMed Agreement,
respectively.
Under the
terms of the AffaMed Agreement, AffaMed agreed to make a
non-dilutive upfront license payment of $5.0 million to us, which
we received in August 2020. The $5.0 million upfront license
payment resulted in net cash proceeds to us of approximately $4.655
million after the sublicense payment we agreed to make to Pherin
Pharmaceuticals, Inc. (
Pherin
)
pursuant to our PH94B license from Pherin, and payment for
consulting services related to the AffaMed
Agreement.
Additionally, as described in Note 9,
Capital
Stock
, on March 24, 2020, we
entered into a purchase agreement and a registration rights
agreement with Lincoln Park Capital Fund (
Lincoln
Park
) pursuant to which Lincoln
Park committed to purchase up to $10,250,000 of our common stock at
market-based prices over a period of 24 months (the
LPC
Agreement
). To satisfy our
obligations under the registration rights agreement, we filed a
Registration Statement on Form S-1 (the
LPC Registration
Statement
) with the Securities
and Exchange Commission (the
SEC
) on March 31, 2020, which the SEC declared
effective on April 14, 2020 (Registration No. 333-237514).
Subsequent to the effectiveness of the LPC Registration Statement
and through July 2020, we sold 6,301,995 registered shares of our
common stock to Lincoln Park and received gross cash proceeds of
$2,891,200. We have not sold any shares of our common stock
pursuant to the Lincoln Park Agreement since July
2020.
-89-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As
also described in Note 9,
Capital Stock
,
between December 2020 and March 31, 2021, certain holders of
outstanding warrants exercised such warrants to purchase an
aggregate of 6,396,302 shares of our common stock and we received
cash proceeds of $4,924,800 from such exercises. As disclosed in
Note 16,
Subsequent Events
,
since March 31, 2021, holders of outstanding warrants have
exercised warrants to purchase an additional
1,508,768
shares
of our common stock and we have received cash proceeds of
approximately
$1,105,700.
Liquidity and Capital Resources
During the fiscal year ended March 31, 2021, we received
approximately $119 million in net cash proceeds from the
transactions described above. At March 31, 2021, we had cash and
cash equivalents of approximately $103.1 million, which we believe
is sufficient to fund our planned operations for well beyond the
twelve months following the issuance of these financial statements,
and indicating our ability to continue as a going concern.
Nevertheless, we have not yet developed products that generate
recurring revenue and, assuming successful completion of our
planned clinical and nonclinical programs, we will need to invest
substantial additional capital resources to commercialize any of
them.
During the next twelve months, we plan
to (i) continue PALISADE-1 and prepare for and initiate
multiple studies in our PALISADE
Phase
3 program for development and commercialization of PH94B as an
acute treatment of anxiety in adult patients with SAD, (ii) prepare
for and initiate multiple small exploratory
Phase 2A studies
of PH94B in additional anxiety disorders, (iii) prepare for and
initiate a Phase 2B clinical study of PH10 as a potential
stand-alone treatment for MDD, (iv) prepare for and initiate a
Phase 1B clinical study of AV-101 in combination with probenecid to
enable assessment of potential exploratory Phase 2A development of
the combination in MDD and certain neurological disorders,
and (v) conduct nonclinical studies
involving PH94B, PH10 and AV-101.
Although we believe our current cash position is sufficient to fund
our planned operations for more than the next twelve months
following the issuance of this Annual Report, when necessary and
advantageous, we may raise additional capital through the sale of
our equity securities in one or more (i) public offerings (ii)
private placements to accredited investors, and/or (iii) in
strategic licensing and development collaborations involving one or
more of our drug candidates in markets outside the United States,
similar to the AffaMed Agreement. Subject to certain restrictions,
our Registration Statement on Form S-3 (Registration No.
333-254299) (the
S-3 Registration
Statement
), which became
effective on March 26, 2021, 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.
In addition to the potential sale of our equity securities, we may
also seek to enter research, development and/or commercialization
collaborations similar to the AffaMed Agreement and the Bayer
Agreement (defined in Note 12, below) to provide funding, including
non-dilutive funding, for development of one or more of our CNS
product candidate programs. We may also seek additional government
grant awards or agreements similar to our prior agreement with the
U.S. National Institutes of Health (
NIH
), Baylor University and the U.S. Department of
Veterans Affairs in connection with certain government-sponsored
studies of AV-101. Such strategic collaborations may provide
non-dilutive resources to advance our strategic initiatives while
reducing a portion of our future cash outlays and working capital
requirements. We may also pursue intellectual property arrangements
similar to the AffaMed Agreement and the Bayer Agreement with other
parties. Although we may seek additional collaborations that could
generate revenue and/or provide non-dilutive funding for
development of our product candidates, as well as new government
grant awards and/or agreements, no assurance can be provided that
any such collaborations, awards or agreements will occur in the
future.
Our future working capital requirements will depend on many
factors, including, without limitation, potential impacts related
to the current COVID-19 pandemic, the scope and nature of
opportunities related to our success and the success of certain
other companies in nonclinical and clinical trials, including our
development and commercialization of our current product candidates
and various applications of our stem cell technology platform, the
availability of, and our ability to obtain, government grant awards
and agreements, and our ability to enter into collaborations on
terms acceptable to us. To further advance the clinical development
of PH94B, PH10, and AV-101 and, to a lesser extent, our stem cell
technology platform, as well as support our operating activities,
we plan to continue to carefully manage our routine operating
costs, including our employee headcount and related expenses, as
well as costs relating to regulatory consulting, contract
manufacturing, research and development, investor and public
relations, business development, legal, intellectual property
acquisition and protection, public company compliance and other
professional services and operating costs.
Notwithstanding the foregoing, there can be no assurance that our
current strategic collaborations under the AffaMed Agreement and/or
the Bayer Agreement will generate revenue from future potential
milestone payments, or that future financings or government or
other strategic collaborations will be available to us in
sufficient amounts, in a timely manner, or on terms acceptable to
us, if at all. If we are unable to obtain additional financing on a
timely basis when needed, our business, financial condition, and
results of operations may be harmed, the price of our stock may
decline, we may be required to reduce, defer, or discontinue
certain of our research and development activities and we may not
be able to continue as a going concern.
-90-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, determination of right of use assets
under lease transactions and related lease obligations, and
the assumptions used to value warrants, warrant modifications
and useful lives for property and equipment and related
depreciation calculations.
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 laboratory,
information technology and office equipment range from three to
seven years; the estimated useful lives of manufacturing equipment
ranges from five to ten years. Leasehold improvements are amortized
over the shorter of the lease term or the useful life of the
improvements.
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.
Deferred Offering Costs
Deferred offering costs are expenses directly related to our
current S-3 Registration Statement (the
Shelf
Registration
), which became
effective on March 26, 2021, and expenses transferred from our
predecessor registration statement on Form S-3, and the LPC
Registration Statement which became effective on April 14, 2020.
These costs consist of legal, accounting, printing, SEC filing
fees, and, as appropriate, Nasdaq filing fees, and, in the case of
the LPC Registration Statement, the issuance-date fair value of
certain shares of our common stock issued to Lincoln Park under the
terms of the LPC Agreement. Deferred costs associated with the
Shelf Registration are reclassified to additional paid-in capital
on a pro-rata basis as we complete offerings under the S-3
Registration Statement, with any remaining deferred costs to be
charged to results of operations at the end of the three-year life
of the S-3 Registration Statement. During the fiscal years ended
March 31, 2021 and 2020, we charged deferred offering costs of
$15,800 and $300, respectively, to additional paid-in capital as a
result of offerings under the Shelf Registration. Deferred costs
associated with the LPC Registration Statement are reclassified to
additional paid-in capital on a pro-rata basis as we complete sales
of our common stock pursuant to the LPC Agreement, with any
remaining deferred costs to be charged to results of operations at
the end of the two-year life of the LPC Agreement. We charged
deferred offering costs of $94,400 and $8,100 to additional paid-in
capital during the fiscal years ended March 31, 2021 and 2020,
respectively, as a result of sales of our common stock under the
LPC Agreement.
-91-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
Our
primary source of revenue for the fiscal year ended March 31, 2021
is from the AffaMed Agreement involving clinical development and
commercialization of PH94B for acute treatment of anxiety in adults
with SAD, and potentially other anxiety-related disorders, in
Greater China, South Korea, and Southeast Asia.
The terms of the AffaMed
Agreement include a $5.0 million non-refundable upfront license fee
which we received in August 2020, potential payments based upon
achievement of certain development and commercial milestones, and
royalties on product sales.
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. We did not recognize any revenue under the Bayer
Agreement (defined in Note 12) which we entered in our fiscal year
ended March 31, 2017, in the fiscal years ended March 31, 2021 or
2020. Upon adoption of ASC Topic 606, there was no change to the
units of accounting previously identified with respect to the Bayer
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
assess the goods or services promised within each contract and
determine those that are performance obligations. Arrangements that
include rights to additional goods or services that are exercisable
at a customer’s discretion are generally considered options.
We assess whether these options provide a material right to the
customer and if so, they are considered performance obligations.
The exercise of a material right may be accounted for as a contract
modification or as a continuation of the contract for accounting
purposes.
We
assess whether each promised good or service is distinct for the
purpose of identifying the performance obligations in the contract.
This assessment involves subjective determinations and requires
judgments about the individual promised goods or services and
whether such are separable from the other aspects of the
contractual relationship. Promised goods and services are
considered distinct provided that: (i) the customer can benefit
from the good or service either on its own or together with other
resources that are readily available to the customer (that is, the
good or service is capable of being distinct) and (ii) our promise
to transfer the good or service to the customer is separately
identifiable from other promises in the contract (that is, the
promise to transfer the good or service is distinct within the
context of the contract). In assessing whether a promised good or
service is distinct in the evaluation of a collaboration
arrangement subject to Topic 606, we consider factors such as the
research, manufacturing and commercialization capabilities of the
collaboration partner and the availability of the associated
expertise in the general marketplace. We also consider the intended
benefit of the contract in assessing whether a promised good or
service is separately identifiable from other promises in the
contract. If a promised good or service is not distinct, we are
required to combine that good or service with other promised goods
or services until we identify a bundle of goods or services that is
distinct.
The
transaction price is then determined and allocated to the
identified performance obligations in proportion to their
standalone selling prices (
SSP
) on a relative SSP basis. SSP is
determined at contract inception and is not updated to reflect
changes between contract inception and satisfaction of the
performance obligations. Determining the SSP for performance
obligations requires significant judgment. In developing the SSP
for a performance obligation, we consider applicable market
conditions and relevant Company-specific factors, including factors
that were contemplated in negotiating the agreement with the
customer and estimated costs. In certain circumstances, we may
apply the residual method to determine the SSP of a good or service
if the standalone selling price is considered highly variable or
uncertain. We validate the SSP for performance obligations by
evaluating whether changes in the key assumptions used to determine
the SSP will have a significant effect on the allocation of
arrangement consideration between multiple performance
obligations.
If the
consideration promised in a contract includes a variable amount, we
estimate the amount of consideration to which we will be entitled
in exchange for transferring the promised goods or services to a
customer. We determine the amount of variable consideration by
using the expected value method or the most likely amount method.
We include the unconstrained amount of estimated variable
consideration in the transaction price. The amount included in the
transaction price is constrained to the amount for which it is
probable that a significant reversal of cumulative revenue
recognized will not occur. At the end of each subsequent reporting
period, we re-evaluate the estimated variable consideration
included in the transaction price and any related constraint, and
if necessary, adjust our estimate of the overall transaction price.
Any such adjustments are recorded on a cumulative catch-up basis in
the period of adjustment.
-92-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 PH94B, PH10 and AV-101, 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
required 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 or other grantee
is required to perform services in exchange for the award, which
generally represents the scheduled vesting period. We have not
granted restricted stock awards to employees or consultants nor do
we have any awards with market or performance
conditions. Prior to our April 1, 2019 adoption of
ASU
2018-07,
Compensation-Stock
Compensation (Topic 718), Improvements to Nonemployee Share-Based
Payment Accounting
(
ASU
2018-07
),
we historically
re-measured the fair value of option grants to non-employees as
they vested and any resulting increase in value was recognized as
an expense during the period over which the services were
performed. Under ASU 2018-17, expense recognition for grants to
non-employees now follows the same methodology as for employees.
Noncash expense attributable to compensatory grants of our common
stock to non-employees is determined by the quoted market price of
the stock on the date of grant and is either recognized as
fully-earned at the time of the grant or expensed ratably over the
term of the related service agreement, depending on the terms of
the specific agreement.
-93-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Right of Use Assets and Operating Lease Obligations
We adopted Accounting Standards Update No. 2016-02,
“
Leases (Topic
842)”
(
ASU
2016-02
) effective April 1,
2019
.
ASU 2016-02
requires that we determine, at the inception of an arrangement,
whether the arrangement is or contains a lease, based on the unique
facts and circumstances present. Operating lease assets represent
our right to use an underlying asset for the lease term
(
Right of use assets
) and
operating lease liabilities represent our obligation to make lease
payments arising from the lease. Right of use assets and operating
lease liabilities are recognized at the commencement date of the
lease based upon the present value of lease payments over the lease
term. When determining the lease term, we include options to extend
or terminate the lease when it is reasonably certain, at inception,
that we will exercise that option. The interest rate implicit in
lease contracts is typically not readily determinable; accordingly,
we use our incremental borrowing rate, which is the rate that would
be incurred to borrow on a collateralized basis over a similar term
an amount equal to the lease payments in a similar economic
environment, based upon the information available at the
commencement date. The lease payments used to determine our
operating lease assets may include lease incentives, stated rent
increases and escalation clauses linked to rates of inflation, when
determinable, and are recognized in determining our Right of use
assets. Our operating lease is reflected in the Right-of-use asset
– operating lease; Operating lease obligation - current
portion; and Operating lease obligation - non-current portion in
our consolidated balance sheets.
Lease
expense for minimum lease payments is recognized on a straight-line
basis over the lease term. As a result of our adoption of ASU
2016-02, we no longer recognize deferred rent on the consolidated
balance sheet. Short-term leases, defined as leases that have a
lease term of 12 months or less at the commencement date, are
excluded from this treatment and are recognized on a straight-line
basis over the term of the lease. Variable lease payments are
amounts owed by us to a lessor that are not fixed, such as
reimbursement for common area maintenance costs for our facility
lease; and are expensed when incurred.
Financing
leases, formerly referred to as capitalized leases, are treated
similarly to operating leases except that the asset subject to the
lease is included in the appropriate fixed asset category, rather
than recorded as a Right of use asset, and depreciated over its
estimated useful life, or lease term, if shorter.
Concentrations of Credit Risk
Financial instruments, which potentially subject us to
concentrations of credit risk, consist of cash and cash
equivalents. Our investment policies limit any such investments to
short-term, low-risk instruments. We deposit cash and cash
equivalents with quality financial institutions which are insured
to the maximum of federal limitations. Balances in these accounts
may exceed federally insured limits at times.
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.
-94-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2021 or
2020.
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 of dividends on
outstanding shares of our Series B 10% Convertible Preferred Stock
(
Series B Preferred
) for
the fiscal years ended March 30, 2021 and 2020, respectively, and,
in the fiscal year ended March 31, 2021, by the beneficial
conversion feature related to our Series D Convertible Stock
(
Series D Preferred
), as
described in Note 9,
Capital
Stock
,
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,
|
|
|
|
2021
|
2020
|
|
|
|
|
|
Numerator:
|
|
|
|
Net loss
attributable to common stockholders for basic and diluted
earnings
|
|
|
|
pershare
|
$
(42,319,800
)
|
$
(22,037,600
)
|
|
|
|
|
|
Denominator:
|
|
|
|
Weighted
average basic and diluted common shares outstanding
|
86,133,644
|
43,869,523
|
|
|
|
|
|
|
|
|
|
Basic and
diluted net loss attributable to common stockholders per common
share
|
$
(0.49
)
|
$
(0.50
)
|
|
|
|
|
Potentially dilutive securities excluded in determining diluted net
loss per common share for the fiscal years ended March 31, 2021 and
2020 are as follows:
-95-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
At March 31,
|
At March 31,
|
|
|
2021
|
2020
|
|
|
|
|
|
Series A Preferred stock issued and
outstanding
(1)
|
750,000
|
750,000
|
|
|
|
|
|
Series B Preferred stock issued and
outstanding
(2)
|
1,131,669
|
1,160,240
|
|
|
|
|
|
Series C Preferred stock issued and
outstanding
(3)
|
2,318,012
|
2,318,012
|
|
|
|
|
|
Series D Preferred stock issued and
outstanding
(4)
|
402,149
|
-
|
|
|
|
|
|
Outstanding
options under the Company's Amended and Restated 2016 (formerly
2008) Stock Incentive Plan and 2019 Omnibus Equity Incentive
Plan
|
14,638,088
|
10,003,088
|
|
|
|
|
|
Outstanding
warrants to purchase common stock
|
19,362,532
|
26,555,281
|
|
|
|
|
|
Total
|
38,602,450
|
40,786,621
|
|
____________
|
|
|
|
(1)
Assumes exchange under the terms of
the October 11, 2012 Note Exchange and Purchase Agreement, as
amended.
|
||
|
(2)
Assumes exchange under the terms of
the Certificate of Designation of the Relative Rights and
Preferences of the Series B 10% Convertible Preferred Stock,
effective May 5, 2015; excludes shares of unregistered 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.
|
||
|
(4)
Assumes exchange under the terms of
the Certificate of Designation of the Relative Rights and
Preferences of the Series D Convertible Preferred Stock, effective
December 21, 2020.
|
||
|
|
|
|
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
August 2020, the Financial Accounting Standards Board (
FASB
) issued ASU 2020-06, Debt –
Debt with Conversion and Other Options (Subtopic 470- 20) and
Derivatives and Hedging – Contracts in Entity’s Own
Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity’s Own Equity (
ASU 2020-06
), to reduce complexity in
applying GAAP to certain financial instruments with characteristics
of liabilities and equity.
The
guidance in ASU 2020-06 simplifies the accounting for convertible
debt instruments and convertible preferred stock by removing the
existing guidance in ASC 470-20, Debt: Debt with Conversion and
Other Options, that requires entities to account for beneficial
conversion features and cash conversion features in equity,
separately from the host convertible debt or preferred stock. The
guidance in ASC 470-20 applies to convertible instruments for which
the embedded conversion features are not required to be bifurcated
from the host contract and accounted for as
derivatives.
In
addition, the amendments revise the scope exception from derivative
accounting in ASC 815-40 for freestanding financial instruments and
embedded features that are both indexed to the issuer’s own
stock and classified in stockholders’ equity, by removing
certain criteria required for equity classification. These
amendments are expected to result in more freestanding financial
instruments qualifying for equity classification (and, therefore,
not accounted for as derivatives), as well as fewer embedded
features requiring separate accounting from the host
contract.
The
amendments in ASU 2020-06 further revise the guidance in ASC 260,
Earnings Per Share, to require entities to calculate diluted
earnings per share (EPS) for convertible instruments by using the
if-converted method. In addition, entities must presume share
settlement for purposes of calculating diluted EPS when an
instrument may be settled in cash or shares.
The
amendments in ASU 2020-06 are effective for our fiscal year
beginning April 1, 2024. We are evaluating the impact of this new
guidance, but do not believe that our adoption of ASU 2020-06 will
have a material impact on our consolidated financial
statements.
Other
accounting standards that have been issued or proposed by the FASB
or other standards-setting bodies that do not require adoption
until a future date are not expected to have a material impact on
our consolidated financial statements upon adoption.
-96-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Receivable from Collaboration Partner
This amount reflects a payment we made to a contract manufacturing
organization for certain drug substance manufacturing services on
behalf of our collaboration partner. Our collaboration partner
reimbursed us for the payment in May 2021.
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consists of the
following:
|
|
March
31,
|
March
31,
|
|
|
2021
|
2020
|
|
|
|
|
|
Clinical and
nonclinical materials and contract services
|
$
686,900
|
$
115,200
|
|
Insurance
|
121,800
|
107,200
|
|
All
other
|
26,400
|
2,700
|
|
|
$
835,100
|
$
225,100
|
6. Property and Equipment
Property and equipment consists of the following:
|
|
March 31,
|
March 31,
|
|
|
2021
|
2020
|
|
|
|
|
|
Laboratory
equipment
|
$
937,400
|
$
892,500
|
|
Tenant
improvements
|
214,400
|
214,400
|
|
Information
technology equipment
|
73,900
|
54,600
|
|
Office
furniture and equipment
|
84,600
|
84,600
|
|
Manufacturing
equipment
|
211,200
|
-
|
|
|
1,521,500
|
1,246,100
|
|
|
|
|
|
Accumulated
depreciation and amortization
|
(1,154,100
)
|
(1,036,500
)
|
|
Property
and equipment, net
|
$
367,400
|
$
209,600
|
The following table summarizes depreciation and amortization
expense attributable to owned and leased property and equipment for
the fiscal years ended March 31, 2021 and 2020:
|
|
Fiscal Years Ended March 31,
|
|
|
|
2021
|
2020
|
|
|
|
|
|
Owned
assets
|
$
114,600
|
$
100,200
|
|
Leased
assets
|
3,000
|
2,900
|
|
Total
depreciation and amortization
|
$
117,600
|
$
103,100
|
The amount reported above for manufacturing equipment at March 31,
2021 reflects the cost of certain process equipment acquired in
connection with the manufacture of PH94B drug product and placed in
service in the fourth quarter of the fiscal year ended March 31,
2021. Included in amounts reported above for office furniture and
equipment is the right-of-use asset related to a financing lease of
certain office equipment. Amounts associated with assets subject to
the financing lease at March 31, 2021 and 2020 are as
follows:
|
|
March
31,
|
March
31,
|
|
|
2021
|
2020
|
|
|
|
|
|
Office equipment
subject to financing lease
|
$
14,700
|
$
14,700
|
|
Accumulated
depreciation
|
(12,400
)
|
(9,400
)
|
|
|
|
|
|
Net book value of
office equipment subject to
|
|
|
|
financing
lease
|
$
2,300
|
$
5,300
|
Other than certain leased office equipment, none of our assets were
subject to third party security interests at March 31, 2021 or
2020.
-97-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Accrued Expenses
Accrued expenses consist of:
|
|
March
31,
|
March
31,
|
|
|
2021
|
2020
|
|
|
|
|
|
Accrued expenses
for clinical and nonclinical
|
|
|
|
materials,
development and contract services
|
$
1,449,400
|
$
462,300
|
|
Accrued
professional services
|
85,500
|
76,500
|
|
All
other
|
27,800
|
22,700
|
|
|
$
1,562,700
|
$
561,500
|
8. Notes Payable
The following table summarizes our notes payable:
|
|
March
31, 2021
|
March
31, 2020
|
||||
|
|
Principal
|
Accrued
|
|
Principal
|
Accrued
|
|
|
|
Balance
|
Interest
|
Total
|
Balance
|
Interest
|
Total
|
|
7.30% Note payable
to insurance premium
financing company
(current)
|
$
-
|
$
-
|
$
-
|
$
56,500
|
$
-
|
$
56,500
|
In February 2020, we executed a 7.30% promissory note in the
principal amount of $62,600 in connection with certain insurance
policy premiums. That note was payable in monthly installments of
$6,500, including principal and interest, through December 2020 and
was fully paid at March 31, 2021. In May 2020, we executed a 6.30%
promissory note in the principal amount of $322,200 in connection
with other insurance policy premiums. The note was payable in
monthly installments of $33,200, including principal and interest,
through March 2021, and was fully paid at March 31,
2021.
In April 2020, we entered into a note payable agreement (the
PPP Loan
Agreement
) with Silicon Valley
Bank as lender (the
Lender
), pursuant to which we received net proceeds of
$224,400 from a potentially forgivable loan from the U.S. Small
Business Administration (
SBA
) pursuant to the Paycheck Protection Program
(
PPP
) enacted by Congress under the Coronavirus
Aid, Relief, and Economic Security Act (the
CARES Act
) administered by the SBA (the
PPP Loan
). In accordance with its terms, the PPP Loan was
to mature on April 22, 2022. The PPP Loan accrued interest at a
rate of 1.00% per annum throughout the period it was outstanding.
The CARES Act provided that all or a portion of the PPP Loan might
be forgiven upon our request to the Lender, subject to requirements
in the PPP Loan Agreement and the CARES Act. While we believe our
use of the PPP Loan proceeds met all of the conditions for
forgiveness under the PPP, following the completion of the December
2020 Public Offering, on December 23, 2020, we voluntarily repaid
in full the outstanding principal balance of the PPP Loan,
$224,400, plus accrued interest of approximately
$1,500.
9. Capital Stock
Common Stock
At our
Special Meeting of Stockholders on March 5, 2021, as approved by
and recommended to our stockholders by our 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 175.0 million shares to 325.0 million shares. The
amendment became effective on March 5, 2021, upon our filing of a
certificate of amendment with the Nevada Secretary of State.
Previously, at our Annual Meeting of Stockholders on September 5,
2019, as approved by and recommended to our stockholders by our
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 100.0 million shares
to 175.0 million shares. The amendment became effective on
September 6, 2019, upon our filing of a certificate of amendment
with the Nevada Secretary of State. In connection with an
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 traded 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.
-98-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2021 and 2020, 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 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. (
Series B Certificate of
Designation
) with the Nevada
Secretary of State to designate 4.0 million shares of our
authorized preferred stock as Series B
Preferred.
Except with respect to transactions upon which the Series B
Preferred shall be entitled to vote separately as a class, the
Series B Preferred has no voting rights. The common stock into
which the Series B Preferred is convertible shall, upon issuance,
have all of the same voting rights as other issued and outstanding
shares of our common stock.
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. As permitted by the Series
B Certificate of Designation, approximately 2.4 million shares of
Series B Preferred were converted automatically into approximately
2.4 million shares of our common stock 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 (
Automatic
Conversion
). Both 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.
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. We have recognized a
liability in the amount of $6,272,700 for Accrued Dividends in
the
accompanying Consolidated Balance Sheet at March 31,
2021,
based on the Series B Preferred
issued and outstanding through that date. We have recognized a
deduction from net loss of $1,385,600 and $1,263,600 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, 2021 and 2020,
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, of 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, our Series C Preferred and
Series D Preferred stock (the latter two defined below).
The
liquidation value of the Series B Preferred at March 31, 2021 is
approximately $14,194,400.
In
December 2020, an institutional holder of 28,571 shares
of our Series B Preferred converted such shares into an equal
number of unregistered shares of our common stock. In accordance
with the conversion terms of the Series B Preferred, we also issued
160,062 shares of our unregistered common stock in payment of
$124,600 of dividends that had accrued on the holder’s Series
B Preferred since issuance. Following the conversion,
at March 31, 2021 there were 1,131,669 shares of
Series B Preferred outstanding, which are exchangeable at the
option of the holder by Voluntary Conversion into 1,131,669 shares
of our common stock, excluding shares of our common stock which may
be issued in payment of Accrued Dividends upon
conversion.
-99-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Series C Preferred Stock
In
January 2016, our Board authorized the creation of and
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 A Preferred, our Series B Preferred and our Series D
Preferred (defined below).
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, 2021 and 2020, one
holder and its affiliates held all 2,318,012 outstanding shares of
Series C Preferred.
Series D Preferred Stock
On
December 17, 2020, in connection with the December 2020 Public
Offering (defined below), our Board authorized the creation of a
series of up to 2,000,000 shares of Series D Preferred Stock, par
value $0.001 (
Series D
Preferred
), which became effective with the filing of a
Certificate of Designation of the Relative Rights and Preferences
of the Series D Convertible Preferred Stock (
Series D
Certificate of Designation
) with the
State of Nevada on December 21, 2020.
Each
share of our Series D Preferred is initially convertible into 23
shares of our common stock at any time at the option of the holder,
provided
that, the
Series D Preferred is not convertible prior to the date on which we
have received approval from our stockholders to increase the total
authorized shares of our common stock by at least an amount
necessary to reserve shares sufficient to satisfy our conversion
obligations in respect of the Series D Preferred and an amendment
to our Restated and Amended Articles of Incorporation reflecting
such increase becomes effective (the
Approval Date
). Additionally, a holder
of shares of Series D Preferred will be prohibited, subject to
certain exceptions, from converting such shares into shares of our
common stock if, as a result of such conversion, the holder,
together with its affiliates and other attribution parties, would
own more than 9.99% of the total number of shares of our common
stock then issued and outstanding, which percentage may be changed
at the holder’s election to a lower percentage at any time or
to a higher percentage not to exceed 19.99% upon 61 days’
prior notice to us.
Prior
to the Approval Date, in the event of our liquidation, dissolution,
or winding up of the Company’s affairs, holders of Series D
Preferred will receive a payment equal to $0.001 per share before
any proceeds are distributed to the holders of our common stock. On
and after the Approval Date, the Series D Preferred will have no
liquidation preference.
Prior
to the Approval Date, holders of shares of our Series D Preferred
will have one vote per share of Series D Preferred and will vote as
a single class with our shares of common stock. On and after the
Approval Date, shares of Series D Preferred will generally have no
voting rights, except to the extent expressly provided in our
Restated and Amended Articles of Incorporation or as otherwise
required by law.
For as
long as shares of Series D Preferred are outstanding, the
affirmative consent of holders of a majority of the outstanding
shares of Series D Preferred will be required before we
can:
●
amend, alter,
modify or repeal (whether by merger, consolidation or otherwise)
the Series D Preferred Certificate of Designation, our articles of
incorporation or our bylaws in any manner that adversely affects
the rights, preferences, privileges or the restrictions provided
for the benefit of, the Series D Preferred;
●
issue further
shares of Series D Preferred or increase or decrease (other than by
conversion) the number of authorized shares of Series D Preferred;
or
●
enter into any
agreement to do any of the foregoing that is not expressly made
conditional on obtaining the affirmative vote or written consent of
the requisite holders.
-100-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the event of the liquidation, dissolution or winding up of our
affairs, t
he Series D Preferred ranks senior to any
class or series of our capital stock hereafter created specifically
ranking by its terms junior to the preferred stock; until the
Approval Date, senior to our common stock; on parity with any class
or series of capital stock hereafter created specifically ranking
by its terms on parity with the preferred stock; and junior to any
class or series of capital stock hereafter created specifically
ranking by its terms senior to the preferred stock.
At the
time of its issuance in connection with the December 2020 Public
Offering (described below), we did not have a sufficient number of
authorized shares of our common stock to permit the conversion in
full of our Series D Preferred and the issuance upon exercise or
conversion of all other outstanding series of preferred stock,
warrants to purchase common stock or outstanding stock options or
shares reserved for issuance of the same. Accordingly, on March 5,
2021, we held a Special Meeting of Stockholders (the
Special Meeting
) at which our
stockholders approved an amendment to our Restated and Amended
Articles of Incorporation to increase the number of authorized
shares of our common stock from 175 million shares to 325 million
shares (the
Charter
Amendment
), an amount sufficient to permit the conversion of
all outstanding shares of Series D Preferred. The affirmative vote
by a majority of our common stockholders and Series D Preferred
holders, voting as a single class, at the Special Meeting
constituted the Approval Date noted above.
Following
the Special Meeting, between March 12, 2021 and March 31, 2021,
holders of an aggregate of 1,597,851 shares of Series D Preferred
converted such shares into 36,750,573 registered shares of our
common stock. At March 31, 2021, there were 402,149 shares of
Series D Preferred outstanding which were convertible into
9,249,427 shares of our common stock. See Note 16,
Subsequent Events
, for information
regarding additional conversions after March 31, 2021.
During
our fiscal years ended March 31, 2021 and 2020, we completed
private placement and public offerings as described
below.
Common Stock and Warrants Issued in Fall 2019 Private
Placement
Between October 30, 2019 and November 7, 2019, in a self-placed
private placement and pursuant to subscription agreements received
from certain accredited investors, we sold to such investors units,
at a purchase price of $1.00 per unit, consisting of an aggregate
of 650,000 unregistered shares of our common stock and warrants,
exercisable beginning six months and one day following issuance and
through November 1, 2023, to purchase 325,000 unregistered shares
of our common stock at an exercise price of $2.00 per share
(the
Fall
2019 Private Placement
). We
received cash proceeds of $650,000 from the Fall 2019 Private
Placement.
As further described below under “Winter 2019 Warrant
Modification,” in December 2019, we modified the warrants
issued in connection with the Fall 2019 Private Placement to (i)
reduce the exercise price from $2.00 per share to $0.50 per share
and (ii) to allow for the warrants to become immediately
exercisable. Further, we issued warrants to purchase an aggregate
of 325,000 additional shares of our common stock to the
participants in the Fall 2019 Private Placement (the
Additional
Warrants
) to increase the
number of unregistered shares of common stock issuable upon
exercise of the warrants from 50% to 100%. The Additional Warrants
are immediately exercisable through March 31, 2024 at an exercise
price of $0.50 per share.
We calculated the fair value of the Additional Warrants using the
Black Scholes Option Pricing Model and the weighted average
assumptions indicated in the table below, recognizing $88,800 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,
2020.
|
Assumption:
|
Additional Warrants
|
|
Market
price per share
|
$
0.44
|
|
Exercise
price per share
|
$
0.50
|
|
Risk-free
interest rate
|
1.59
%
|
|
Contractual
term in years
|
4.32
|
|
Volatility
|
86.64
%
|
|
Dividend
rate
|
0.0
%
|
|
|
|
|
Number
of warrant shares
|
325,000
|
|
Weighted average fair value per share
|
$
0.27
|
Winter 2019 Warrant Modification
On December 4, 2019, we modified outstanding warrants previously
issued as a part of completed private placements to temporarily
reduce, for a period of two years or, if sooner, until the
expiration of the warrant, the exercise price of such warrants to
$0.50 per share, in order to more closely align the exercise price
of the warrants with the trading price of our common stock at such
time (the
Winter 2019 Warrant
Modification
). Following the
two-year period during which the exercise price is reduced, the
exercise price of each then-outstanding modified warrant will
revert to its pre-modification price. As a result of the Winter
2019 Warrant Modification, outstanding warrants to purchase a total
of approximately 6.6 million unregistered shares of our common
stock were modified.
-101-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We calculated the fair value of the modified warrants, including
those issued in the Fall 2019 Private Placement, immediately before
and after the modification using the Black Scholes Option Pricing
Model for pre-modification valuations and for post-modification
valuations for warrants expiring in less than two years.
For
the warrants expiring after the December 4, 2021 exercise price
reversion date, we ran a binomial model using 24 steps, one for
each month, and lognormal distribution to estimate our stock price
at December 4, 2021, the termination date for the exercise price
reduction. We then compared the exercise value of each warrant at
each estimated stock price to the remaining option value if the
warrant was not exercised on December 4, 2021 and allowed to revert
to its original exercise price. For any estimated stock price above
$0.50 per share (an in-the-money warrant), we determined that the
holders would convert their warrants. For any estimated stock price
below $0.50 per share, we determined that the holders would
continue to hold their warrants. Given the significant reductions
in exercise price (the pre-modification exercise prices ranged from
$1.50 to $2.24 per share), if the warrants are not exercised prior
to December 4, 2021, the Black-Scholes values upon the reversion of
the exercise prices are very low, such that there is nominal
additional value for continuing to hold the warrants. Accordingly,
our estimated post-modification fair value for warrants having an
expiration date later than the two-year exercise price reversion
date, December 4, 2021, is equal to the value of an option
determined using the
Black Scholes
Option Pricing Model having an exercise price of $0.50 per share
and a two-year term and related assumptions. The table below
indicates the pre- and post-modification weighted average
assumptions used in our valuations. We recognized the incremental
fair value, $702,500, 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, 2020.
|
Assumption:
|
Pre-
modification
|
Post-
modification
|
|
Market
price per share
|
$
0.44
|
$
0.44
|
|
Exercise
price per share
|
$
1.85
|
$
0.50
|
|
Risk-free
interest rate
|
1.58
%
|
1.58
%
|
|
Remaining
contractual term in years
|
2.25
|
1.91
|
|
Volatility
|
87.5
%
|
88.1
%
|
|
Dividend
rate
|
0.0
%
|
0.0
%
|
|
|
|
|
|
Number
of warrant shares
|
6,611,759
|
6,611,759
|
|
Weighted average fair value per share
|
$
0.08
|
$
0.19
|
Following the Winter 2019 Warrant Modification, investors holding a
total of 820,000 warrants exercised their warrants at the reduced
price of $0.50 per share, resulting in cash proceeds to us of
$410,000 during the quarter ended December 31, 2019.
December 19, 2019 Warrant Modification
On December 19, 2019, we modified additional outstanding warrants
previously issued as a part of a completed private placement to
permanently reduce the exercise price of such warrants to $0.805
per share and to extend the term of such warrants through December
31, 2022, in order to more closely align the exercise price of the
warrants with the current trading price of our common stock and to
provide additional time for the holders to exercise the warrants
(the
December 19,
2019 Warrant
Modification
). As a result of
the December 19, 2019 Warrant Modification, we modified outstanding
warrants to purchase a total of 80,431 shares of our common
stock.
We calculated the fair value of the modified 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, $35,600, 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, 2020.
|
Assumption:
|
Pre-
modification
|
Post-modification
|
|
Market
price per share
|
$
0.805
|
$
0.805
|
|
Exercise
price per share
|
$
7.00
|
$
0.805
|
|
Risk-free
interest rate
|
1.57
%
|
1.65
%
|
|
Remaining
contractual term in years
|
0.58
|
3.034
|
|
Volatility
|
98.7
%
|
84.9
%
|
|
Dividend
rate
|
0.0
%
|
0.0
%
|
|
|
|
|
|
Number
of warrant shares
|
80,431
|
80.431
|
|
Weighted average fair value per share
|
$
0.00
|
$
.044
|
-102-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Warrants issued in Winter 2019 Warrant Offering
In December 2019, we commenced a self-placed private placement of
warrants to purchase unregistered shares of our common stock at an
offering price of $0.15 per warrant (the
Winter 2019 Warrant
Offering
). Warrants offered and
sold in the Winter 2019 Warrant Offering have an exercise price of
$0.50 per share and term of three years from the issuance date.
Over the course of the Winter 2019 Warrant Offering, we sold
warrants to purchase a total of 2.0 million unregistered shares of
common stock for cash proceeds to us of $300,000, which we
accounted for with a corresponding credit to additional paid-in
capital, an equity account.
Registered Direct Offering of Common Stock and Concurrent Warrant
Offering
In January 2020, we entered into a self-placed securities
purchase agreement with certain accredited investors pursuant to
which we received gross cash proceeds of $2.75 million upon the
sale of an aggregate of 3,870,077 shares of our common stock at a
purchase price of $0.71058 per share (the
January 2020
Offering
). Concurrently with
the January 2020 Offering, we also commenced a private placement in
which we issued and sold warrants (the
January 2020
Warrants
) exercisable for an
aggregate of 3,870,077 unregistered shares of our common stock
(the
Warrant
Shares
), having an exercise
price of $0.73 per Warrant Share. The 3,870,077 shares of common
stock sold in the January 2020 Offering (but not the January 2020
Warrants or the Warrant Shares) were offered and sold pursuant to a
prospectus, dated September 30, 2019, and a prospectus supplement
dated January 24, 2020, in connection with a takedown from our
shelf registration statement
on Form S-3 (File No. 333-234025).
The January 2020 Warrants contain customary provisions allowing for
adjustment to the exercise price and number of Warrant Shares
issuable only in the event of any stock dividend and split, reverse
stock split, recapitalization, reorganization or similar
transaction, as described in the January 2020 Warrants.
In
addition,
subject to limited
exceptions, holders of the January 2020 Warrants will not have the
right to exercise any portion of their respective January 2020
Warrants if the holder, together with any affiliates, would
beneficially own in excess of 4.99% of the number of shares of our
common stock outstanding immediately after giving effect to such
exercise.
The January 2020
Warrants are exercisable from any time after the six-month
anniversary of issuance (the
Initial Exercise
Date
) and will expire on the
fifth year anniversary of the Initial Exercise Date.
Refer to Note 16,
Subsequent
Events
, for disclosure regarding filing of a registration
statement including the shares of common stock underlying the
January 2020 Warrants.
Common Stock Purchase Agreement with Lincoln Park
On March 24, 2020, we entered into a purchase agreement and a
registration rights agreement with Lincoln Park Capital Fund
(
LPC
) pursuant to which LPC committed to purchase up
to $10,250,000 of our common stock at market-based prices over a
period of 24 months (the
LPC
Agreement
). On March 24, 2020,
we sold 500,000 unregistered shares of our common stock (the
Initial Purchase
Shares
) to LPC under the
purchase agreement at a price of $0.50 per share for gross cash
proceeds of $250,000 (the
Initial
Purchase
) and we also issued
750,000 unregistered shares of our common stock to LPC under the
terms of the LPC Agreement (the
Commitment
Shares
). To satisfy our
obligations under the registration rights agreement, we filed a
Registration Statement on Form S-1 (the
LPC Registration
Statement
) with the SEC on
March 31, 2020 (Registration No. 333-237514), which the SEC
declared effective on April 14, 2020 (the
Commencement
Date
). The LPC Registration
Statement included registration of the Initial Purchase Shares and
the Commitment Shares. The fair value of the Commitment Shares,
$284,400, determined based on the quoted closing market price of
our common stock on March 24, 2020, is a component of deferred
offering costs attributable to this offering, which costs are
amortized ratably to additional paid-in capital as we sell shares
of our common stock to LPC under the LPC
Agreement.
Following the Commencement Date, on any business day over the term
of the LPC Agreement, we have the right, in our sole discretion, to
direct LPC to purchase up to 100,000 shares on such business day
(the “
Regular
Purchase
”) (subject to
adjustment under certain circumstances as provided in the LPC
Agreement). The purchase price per share for each such Regular
Purchase will be based on prevailing market prices of our common
stock immediately preceding the time of sale as computed under the
LPC Agreement. In each case, LPC’s maximum commitment in any
single Regular Purchase may not exceed $1,000,000. In addition to
Regular Purchases, provided that we present LPC with a purchase
notice for the full amount allowed for a Regular Purchase, we may
also direct LPC to make
accelerated purchases and additional accelerated
purchases as described in the LPC Agreement
. Although
LPC has no right to require us
to sell any shares of our common stock to LPC, LPC is obligated to
make purchases as we direct, subject to certain conditions. In all
instances, we may not sell shares of our common stock to LPC under
the LPC Agreement if such sales would result in LPC beneficially
owning more than 9.99% of our common stock. There are no upper
limits on the price per share that LPC must pay for shares of our
common stock.
Subsequent to the Commencement Date and through July 2020, we sold
an additional 6,301,995 registered shares of our common stock to
Lincoln Park and received aggregate gross cash proceeds of
$2,891,200. We have sold no shares of our common stock under the
LPC Agreement since July 2020. At March 31, 2021, there were
approximately 2.04 million registered shares of our common stock
remaining available for sale under the LPC Agreement; however, we
have no obligation to sell any additional shares under the LPC
Agreement in the future.
-103-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sale of Common Stock and Warrants in the Spring 2020 Private
Placement
In April 2020, in a self-directed private placement, we sold units
of common stock and warrants to an accredited investor to purchase
an aggregate of 125,000 unregistered shares of our common stock and
four-year warrants to purchase 125,000 shares of our common stock
at an exercise price of $0.50 per share and we received cash
proceeds of $50,000 (the
Spring 2020 Private
Placement
).
Registration Statement for shares underlying warrants issued in
Private Placements and warrant exercises
On May 1, 2020, we filed a registration statement on Form S-3
(Registration No. 333-237968) to register approximately 12.1
million shares of common stock underlying outstanding warrants that
we had issued in earlier private placement offerings, including the
Spring 2020 Private Placement, as well as common stock underlying
warrants that had been previously issued to various consultants as
full or partial compensation for their services. Included in the
registration statement were shares of our common stock underlying
approximately 5.8 million outstanding warrants to purchase shares
of our common stock that had been modified in December 2019 to
temporarily reduce, for a period of two years or, if sooner, until
the expiration of the warrant, the exercise price of such warrants
to $0.50 per share, in order to more closely align the exercise
price of the warrants with the trading price of our common stock at
that time (the
Winter 2019 Warrant
Modification
). We also
registered approximately 0.8 million shares of unregistered
outstanding common stock held by former holders of warrants who had
exercised such warrants subsequent to the Winter 2019 Warrant
Modification. Further, we registered the 125,000 shares of common
stock issued in the Spring 2020 Private Placement. The SEC declared
the registration statement effective on May 13, 2020 (the
Warrant
Registration Statement
). As a
result of the effectiveness of this registration statement, the
shares of common stock underlying essentially all of our
outstanding warrants have been registered.
During July 2020, holders of warrants to purchase an aggregate of
228,000 shares of our common stock exercised such warrants, and we
received aggregate cash proceeds of $114,000. We issued 228,000
registered shares of our common stock upon these exercises pursuant
to the effectiveness of the Warrant Registration Statement. Between
December 2020 and March 31, 2021, holders of outstanding warrants
to purchase an aggregate of 6,396,302 registered shares of our
common stock exercised such warrants and we received $4,200,900 in
cash proceeds.
August 2020 Registered Public Offering of Common Stock
On August 2, 2020, we entered into an underwriting agreement
(the
Underwriting
Agreement
) with Maxim Group,
LLC as representative of the underwriters named therein
(
Maxim
), pursuant to which we sold, in an underwritten
public offering (the
August 2020 Public
Offering
), an aggregate of
15,625,000 shares (the
Shares
) of our common stock for a public offering price
of $0.80 per share, resulting in gross proceeds to us of
$12,500,000. The August 2020 Public Offering closed on August 5,
2020. Under the terms of the Underwriting Agreement, we granted to
Maxim a 45-day over-allotment option to purchase up to an
additional 2,343,750 shares at a public offering price of $0.80 per
share, which Maxim elected to exercise on August 5, 2020 with
respect to an aggregate of 2,243,250 shares (the
Exercised Option
Shares
). We completed the sale
of the Exercised Option Shares on August 7, 2020 and received
additional gross proceeds of $1,794,600. After deducting
underwriting discounts and commissions and offering expenses
payable by us, we received net proceeds of approximately $12.9
million from the August 2020 Public Offering.
December 2020 Registered Public Offering of Common Stock and Series
D Preferred Stock
O
n December 18, 2020, we entered into an underwriting
agreement (the
December 2020
Underwriting Agreement
) with Jefferies LLC (
Jefferies
) and William Blair &
Company, L.L.C. (
Willian
Blair)
, as representatives of the underwriters named therein
(collectively, the
Underwriters
), pursuant to which we
agreed to issue and sell to the Underwriters, in an underwritten
public offering (the
December 2020
Public Offering
), 63,000,000 shares of our common stock, at
a public offering price of $0.92 per share and 2,000,000 shares of
the newly created Series D Preferred (together with the common
stock, the
Securities
) at a
public offering price of $21.16 per share, resulting in gross
proceeds to us of $100.28 million. The December 2020 Public
Offering closed on December 22, 2020 at which time the shares of
common stock and Series D Preferred were sold to the Underwriters.
After deducting underwriting discounts
and commissions and offering expenses payable by us, we received
net proceeds of approximately $93.6 million from the December 2020
Public Offering.
The Series D Preferred that we issued in the December 2020 Public
Offering contained a beneficial conversion feature (a
BCF
), which arises when a debt or equity security is
issued with an embedded conversion option that is deemed beneficial
to the investor, that is, in-the-money, at inception because the
conversion option has an effective conversion price that is less
than the market price of the underlying stock at the commitment
date (with respect to the Series D Preferred, the date the security
was actually issued rather than the date the agreement to do so was
entered into, herein referred to as the
Commitment
Date
). In accordance with
Accounting Standards Codification 470-20,
Debt- Debt with Conversion and
Other Options
(
ASC 470-20
), an embedded BCF is required to be recognized
separately by allocating a portion of the proceeds equal to the
intrinsic value of the feature to additional paid-in capital. ASC
470-20 also provides that the intrinsic value is to be calculated
as of the Commitment Date. The Series D Certificate of Designation
provides that the Series D Preferred has a conversion price of
$0.92 per share on an as-converted basis (the
Conversion
Price
). The Conversion Price
compared to the closing price of $1.42 per share of our common
stock on the Commitment Date results in a difference of $0.50 per
share. That difference multiplied by the 46 million shares of our
common stock issuable upon conversion of the Series D Preferred
resulted in an aggregate BCF of $23.0 million. We did not recognize
the impact of the BCF at December 31, 2020 because the Series D
Preferred was not convertible into common stock prior to the
Approval Date. Following approval by our stockholders of the
Charter Amendment at the Special Meeting in March 2021, the
contingency of the BCF was eliminated and we recognized the BCF as
a noncash charge in arriving at net loss attributable to common
stockholders in our Consolidated Statement of Operations and
Comprehensive Loss for the quarter and fiscal year ended March 31,
2021 and as a corresponding increase in additional paid-in capital
in our Consolidated Statement of Stockholders’ Equity
(Deficit). The BCF was also treated as a deemed dividend in our
Consolidated Statement of Stockholders’ Equity (Deficit).
Since we have an accumulated deficit, we recorded the deemed
dividend as a reduction in additional paid-in capital, resulting in
a net impact of $0 to additional paid-in capital. The recognition
of the BCF on the Series D Preferred had no impact in aggregate on
our stockholders’ equity or on our cash
position.
-104-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Option Exercises
During
the fiscal year ended March 31, 2021, holders of outstanding stock
options, including two members of our Board, exercised options to
purchase an aggregate of 252,004 shares of our common stock and we
received cash proceeds of $36,500. There were no stock option
exercises during the fiscal year ended March 31, 2020.
Warrants Outstanding
Following the Winter 2019 Warrant Modifications, the December 19,
2019 Warrant Modification, the Winter 2019 Warrant Offering, the
issuance of the January 2020 Warrants and the warrants included in
the Spring 2020 Private Placement and the warrant exercises noted
above, the following table summarizes outstanding and exercisable
warrants to purchase shares of our common stock as of March 31,
2021. The weighted average exercise price of outstanding
and exercisable warrants at March 31, 2021 was $1.78 per
share.
|
|
|
Warrants
Exercisable
|
|
Exercise
|
|
and
Outstanding
|
|
Price
|
Expiration
|
at
March 31,
|
|
per
Share
|
Date
|
2021
|
|
|
|
|
|
$
0.50
|
4/30/2021 to
3/31/2024
|
4,944,680
|
|
$
0.73
|
7/25/2025
|
1,670,077
|
|
$
0.805
|
12/31/2022
|
80,431
|
|
$
1.50
|
12/13/2022
|
8,375,530
|
|
$
1.82
|
3/7/2023
|
1,388,931
|
|
$
3.51
|
12/31/2021
|
50,000
|
|
$
5.30
|
5/16/2021
|
2,705,883
|
|
$
7.00
|
3/3/2023
|
147,000
|
|
|
|
|
|
|
19,362,532
|
|
At March 31, 2021, with the effectiveness of the Warrant
Registration Statement in May 2020, the shares of common stock
underlying essentially all of the outstanding warrants except those
having an exercise price of $7.00 per share have been registered
for resale by the warrant holders. Additionally, no outstanding
warrant is subject to any down round anti-dilution protection
features and all of the outstanding warrants are exercisable by the
holders only by payment in cash of the stated exercise price per
share.
-105-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reserved Shares
At March 31, 2021, we have reserved shares of our common stock for
future issuance as follows:
|
COMMON STOCK RESERVED FOR FUTURE ISSUANCE AT 3/31/21
|
|
|
|
|
|
|
|
|
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)
|
4,000,000
|
|
|
|
|
Upon exchange of all shares of Series C Preferred
currently issued and outstanding
(3)
|
2,318,012
|
|
|
|
|
Upon exchange of all shares of Series D Preferred
currently issued and outstanding
(4)
|
9,249,427
|
|
|
|
|
Pursuant
to warrants to purchase common stock:
|
|
|
Subject
to outstanding warrants
|
19,365,532
|
|
|
|
|
Pursuant
to stock incentive plans:
|
|
|
Subject
to outstanding options under the Amended and Restated 2016 Stock
Incentive
|
|
|
Plan
and the 2019 Omnibus Equity Incentive Plan
|
14,638,088
|
|
Available
for future grants under the 2019 Omnibus Equity Incentive
Plan
|
1,843,158
|
|
Available
for future issuance under the 2019 Employee Stock Purchase
Plan
|
941,875
|
|
|
17,423,121
|
|
|
|
|
Reserved
for issuance under Lincoln Park Purchase Agreement
|
320,272
|
|
|
|
|
Total
reserves
|
53,426,364
|
|
____________
|
|
|
(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 2,868,331 shares of common stock
reserved for payment of dividends on Series B Preferred upon
conversion. Refer to
Series B Preferred
Stock,
above, for additional
information regarding payment of dividends in common
stock.
|
|
|
|
|
|
(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.
|
|
|
|
|
|
(4)
Assumes exchange under the terms of
the Certificate of Designation of the Relative Rights and
Preferences of the Series D Convertible Preferred Stock, effective
December 21, 2020.
|
|
|
|
|
|
|
|
-106-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At March 31, 2021, we have 90,958,067 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
$12.5 million and $13.4 million in the fiscal years ended March 31,
2021 and 2020, respectively, including approximately $0.8 million
and $1.4 million of noncash expense in the fiscal years ended March
31, 2021 and 2020, respectively. Research and development expense
is composed of employee compensation expenses, including
stock–based compensation, direct project expenses, notably
including preclinical and nonclinical projects for PH94B, PH10 and
AV-101 in both years and costs attributable to our AV-101 clinical
trial in MDD in the fiscal year ended March 31, 2020, as well as
costs to maintain and prosecute our intellectual property suite,
including patent applications for AV-101 in combination with
probenecid for various indications in the fiscal year ended March
31, 2021.
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, Maryland and North
Carolina income tax.
Income tax expense (benefit) differed from the amounts computed by
applying the statutory federal income tax rate of 21% to pretax
income (loss) as a result of the following:
-107-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Fiscal Years Ended March 31,
|
|
|
|
2021
|
2020
|
|
|
|
|
|
Computed
expected tax benefit
|
(21.00
)%
|
(21.00
)%
|
|
State
income taxes, net of federal benefit
|
0.01
%
|
0.01
%
|
|
Tax
effect of warrant modifications
|
-
%
|
0.84
%
|
|
Tax
effect of research and development credits
|
(1.45
)%
|
(1.60
)%
|
|
Tax
effect of stock compensation
|
4.71
%
|
2.39
%
|
|
Tax
effect of other non-deductible items
|
0.00
%
|
0.00
%
|
|
Expired
net operating loss carryforwards
|
1.99
%
|
0.36
%
|
|
Change
in valuation allowance (federal only)
|
15.74
%
|
19.02
%
|
|
|
|
|
|
Income
tax expense
|
0.00
%
|
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,
|
|
|
|
2021
|
2020
|
|
Deferred tax
assets:
|
|
|
|
Net operating loss
carryovers
|
$
33,587,300
|
$
30,607,500
|
|
Basis differences
in property and equipment
|
12,500
|
9,100
|
|
Research and
development credit carryforwards
|
2,589,000
|
2,256,400
|
|
Stock based
compensation
|
3,515,500
|
3,919,900
|
|
Operating lease
Right of Use asset
|
105,300
|
95,400
|
|
Accruals and
reserves
|
67,000
|
66,500
|
|
|
|
|
|
Total deferred tax
assets
|
39,876,600
|
36,954,800
|
|
|
|
|
|
Valuation
allowance
|
(39,876,600
)
|
(36,954,800
)
|
|
|
|
|
|
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
$2,921,800 and $4,202,500 during the fiscal years ended March 31,
2021 and 2020, respectively.
As
of March 31, 2021, we had U.S. federal net operating loss
carryforwards of approximately $139,175,200. Federal net operating
loss carryforwards of approximately $86,276,400 generated through
our fiscal year ended March 31, 2018 will expire in our fiscal
years ending March 31, 2022 through March 31, 2038. Federal net
operating loss carryforwards of approximately $52,898,800 generated
in fiscal years ending after March 31, 2018 will carry forward
indefinitely, but are subject to an 80% taxable income limitation.
As of March 31, 2021, we had state net operating loss carryforwards
of approximately $64,556,500, which will expire in fiscal
years ending in 2029 through 2041. We also have federal and
state research and development tax credit carryforwards of
approximately $2,415,500 and $1,311,900, respectively. The federal
tax credits will expire at various dates beginning with our fiscal
year ending March 31, 2029, unless previously utilized. The state
tax credits do not expire and will carry forward indefinitely until
utilized.
On March 27, 2020 the U.S. enacted the Coronavirus Aid, Relief, and
Economic Security Act (the
CARES Act
) to provide economic relief in response to the
coronavirus pandemic. The CARES Act, among other things, includes
provisions to allow certain net operating losses to be carried-back
up to five years, to increase interest deduction limitations, and
to make technical corrections to tax depreciation methods for
qualified improvement property. The CARES Act may affect the
corporate income taxes imposed by state governments and may result
in future responses by state legislatures, some of which could have
retroactive effect. The Company evaluated the provisions of the
CARES Act and determined that it did not have a material impact on
the Company’s income tax accounts at March 31, 2021 or
2020.
On June 29, 2020, California Assembly Bill 85 (
AB 85
) was signed into law, suspending the use of
California net operating losses and limiting the use of California
research tax credits for tax years beginning in 2020 and before
2023. The suspension of net operating losses and the restriction of
research tax credits did not result in a significant impact on the
value of our deferred tax assets.
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.
-108-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 2002 through 2021 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, 2021 and 2020 relate
entirely to research and development tax credits. The total amount
of unrecognized tax benefits at March 31, 2021 and 2020 is $931,900
and $814,600, 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,
|
|
|
|
2021
|
2020
|
|
|
|
|
|
Unrecognized
benefit - beginning of period
|
$
814,600
|
$
668,700
|
|
Current
period tax position increases
|
117,300
|
146,000
|
|
Prior
period tax position increases (decreases)
|
-
|
(100
)
|
|
|
|
|
|
Unrecognized
benefit - end of period
|
$
931,900
|
$
814,600
|
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, 2021 or
2020. 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
PH94B Sublicense Agreement with EverInsight
On June 24, 2020, we entered into a license and collaboration
agreement (the
EverInsight
Agreement
)
with
EverInsight Therapeutics Inc., a company
incorporated under the laws of the British Virgin Islands and
funded by CBC Group, a global healthcare-focused venture capital
firm (
EverInsight
).
Subsequent to entering into the EverInsight Agreement, in October
2020, EverInsight merged with AffaMed Therapeutics, Inc., also
funded by CBC Group, which as a combined, complementary entity is
focusing on developing and commercializing therapeutics to address
ophthalmologic and CNS disorders in Greater China and beyond.
Accordingly, we are now referring to EverInsight and the
EverInsight Agreement as AffaMed and the AffaMed Agreement,
respectively. Under the AffaMed Agreement, we g
ranted AffaMed an exclusive license to
develop and commercialize PH94B, our neuroactive pherin drug
candidate for SAD and other anxiety-related disorders, in Greater
China (which includes Mainland China, Hong Kong, Macau and Taiwan),
South Korea and Southeast Asia (which includes Indonesia, Malaysia,
Philippines, Thailand and Vietnam) (collectively, the
Territory
). We retain exclusive development and
commercialization rights for PH94B in the rest of the
world.
Under
the terms of the AffaMed Agreement, AffaMed is responsible for all
costs related to developing, obtaining regulatory approval of, and
commercializing PH94B for treatment of SAD, and potentially other
anxiety-related indications, in the Territory. A joint development
committee has been established between AffaMed and us to coordinate
and review the development and commercialization plans with respect
to PH94B in the Territory.
We are
responsible for pursuing clinical development and regulatory
submissions of PH94B for acute treatment of anxiety in adults with
SAD, and potentially other anxiety-related indications, in the
United States on a ‘‘best efforts’’ basis,
with no guarantee of success. EverInsight has the option to
participate in the Phase 3 global clinical trial of PH94B and will
assume all direct costs and expenses of conducting such clinical
trial in the Territory and a portion of the indirect costs of the
global trial. We will transfer all development data (nonclinical
and clinical data) and our regulatory documentation related to
PH94B throughout the term as it is developed or generated or
otherwise comes into our control. We will grant to AffaMed a Right
of Reference to our regulatory documentation and our development
data.
Under the terms of the AffaMed Agreement, AffaMed agreed to
pay us a non-refundable upfront license payment of $5.0
million
within 30 business days of the effective date of the
AffaMed Agreement, and AffaMed paid the $5 million in August 2020.
Additionally, upon successful
development and commercialization of PH94B in the Territory,
we are eligible to receive milestone payments of up to $172.0
million. Further, we are eligible to receive royalty payments on a
country-by-country basis on net sales for the later of ten years or
the expiration of market or regulatory exclusivity in the
jurisdiction, except that payments will be reduced on a
country-by-country basis in the event that there is no market
exclusivity in the period. Royalty payments may also be reduced if
there is generic competitive product in the period.
-109-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We have
determined that we have one combined performance obligation for the
license to develop and commercialize PH94B in the Territory and
related development and regulatory services. In addition, AffaMed
has an option that will create manufacturing obligations for us
during development upon exercise by AffaMed. This option for
manufacturing services was evaluated and determined not to include
a material right.
Development
and commercialization milestones were not considered probable at
inception and therefore were excluded from the initial transaction
price. The royalties were excluded from the initial transaction
price because they relate to a license of intellectual property and
are subject to the royalty constraint.
We
recognize revenue as the combined performance obligation is
satisfied over time using an output method. The measure of progress
is stand-ready straight-line over the period in which we expect to
perform the services related to the sublicense of PH94B.
Significant management judgment is required to determine the level
of effort attributable to the AffaMed Agreement and the period over
which we expect to complete our performance obligations under the
arrangement. The performance period or measure of progress is
estimated at the inception of the arrangement and re-evaluated in
subsequent reporting periods. This re-evaluation may shorten or
lengthen the period over which we recognize revenue. Changes to
these estimates are recorded on a cumulative catch up basis. We
currently estimate that we will complete our performance
obligations at the end of calendar 2023.
The
difference between the revenue recognized to-date under the AffaMed
Agreement, $1,089,500, and the consideration received to-date,
$5,000,000, is recorded as a contract liability/deferred revenue
(cash received exceeds revenue earned). At March 31, 2021, we have
recorded deferred revenue of $3,910,500. The following table
presents changes in our contract liabilities for our fiscal year
ended March 31, 2021:
|
|
Balance at
|
|
|
Balance
at
|
|
|
March 31, 2020
|
Additions
|
Deductions
|
March 31, 2021
|
|
Deferred
Revenue - current portion
|
$
-
|
$
1,420,200
|
$
-
|
$
1,420,200
|
|
Deferred
Revenue - non-current portion
|
-
|
3,579,800
|
(1,089,500
)
|
2,490,300
|
|
Total
|
$
-
|
$
5,000,000
|
$
(1,089,500
)
|
$
3,910,500
|
For the
single combined performance obligation under the AffaMed Agreement,
the measure of progress is stand-ready straight-line over the
period in which we expect to perform the services related to the
sublicense of PH94B. Accordingly, deferred revenue is being
recognized on a straight-line basis over the period in which we
expect to perform the services.
Contract Acquisition Costs
During
the quarter ended September 30, 2020, we made cash payments
aggregating $345,000 for sublicense fees, which we were obligated
to make pursuant to our PH94B license from Pherin, and fees for
consulting services exclusively related to the AffaMed Agreement.
Additionally, on June 24, 2020, we issued 233,645 unregistered
shares of our common stock, valued at $125,000, as partial
compensation for consulting services exclusively related to the
AffaMed Agreement. These sublicense fees and consulting payments
and the fair value of the common stock issued, aggregating
$470,000, were incurred solely as a result of obtaining the AffaMed
Agreement, and, accordingly, have been capitalized as deferred
contract acquisition costs in our Consolidated Balance Sheet at
March 31, 2021. Capitalized contract acquisition costs are
amortized over the period in which we expect to satisfy the
performance obligations under the AffaMed Agreement and the
amortization expense of $102,400 has been included in general and
administrative expenses in our Consolidated Statement of Operations
and Comprehensive Loss for the fiscal year ended March 31, 2021.
There has been no impairment loss in relation to the costs
capitalized.
Unless earlier terminated due to certain material breaches of the
contract, or otherwise, the
AffaMed
Agreement
will expire on
a jurisdiction-by-jurisdiction basis until the latest to occur
of the expiration of the last valid claim under a licensed patent
of PH94B in such jurisdiction, the expiration of regulatory
exclusivity in such jurisdiction or ten years after the first
commercial sale of PH94B in such jurisdiction.
-110-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
License Agreements with Pherin Pharmaceuticals, Inc.
(Pherin)
In
September 2018 we issued 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 an additional 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 PH94B and
PH10 license agreements, we were obligated to pay to Pherin monthly
support payments of $10,000 for a term of 18 months, however no
monthly support payment was required during the 18-month period
identified in the PH10 license agreement if support payments were
being made under the terms of the PH94B license agreement. The
support payments required under the PH94B license agreement
terminated in March 2020 and in April 2020 under the PH10 license
agreement. Accordingly, we made support payments of $10,000 under
the PH10 license agreement and $120,000 under the PH94B license
agreement in the fiscal years ended March 31, 2021 and 2020,
respectively.
BlueRock Therapeutics Sublicense Agreement
In
December 2016, we entered into an Exclusive License and Sublicense
Agreement with BlueRock Therapeutics, LP, a next generation
regenerative medicine company established in December 2016 by Bayer
AG and Versant Ventures (
BlueRock
Therapeutics
), pursuant to which BlueRock Therapeutics
received exclusive rights to utilize certain technologies
exclusively licensed by us from University Health Network
(
UHN
) for the production of
cardiac stem cells for the treatment of heart disease. As a result
of its acquisition of BlueRock Therapeutics in 2019, Bayer AG now
holds the rights to develop and commercialize our hPSC technologies
relating to the production of heart cells for the treatment of
heart disease (the
Bayer
Agreement
). We retained rights to cardiac stem cell
technology licensed from UHN related to small molecule, protein and
antibody drug discovery, drug rescue and drug development,
including small molecules with cardiac regenerative potential, as
well as small molecule, protein and antibody testing involving
cardiac cells. To date, we have recognized $1.25 million in
sublicense revenue, in our fiscal year ended March 31, 2017, under
the Bayer Agreement.
13. Stock Option Plans, Employee Stock Purchase Plan,
and 401(k) Plan
At March 31, 2021, we have the following share-based compensation
plans, which are described below:
●
Amended and Restated 2016 Stock Incentive Plan (the 2016 Plan);
and
●
2019 Omnibus Equity Incentive Plan (the 2019 Plan)
Description of the 2016 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 to increase the number of shares authorized for
issuance therefrom at our 2017 Annual Meeting of Stockholders on
September 15, 2017. The 2016 Plan provided 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
were 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 could grant incentive stock options only to
employees of the Company or any parent or subsidiary of the
Company. Awards other than incentive stock options could be granted
to employees, directors and consultants. A total of 10.0 million
shares of our common stock were authorized for issuance under the
2016 Plan, of which options to purchase approximately 7.6 million
shares remain outstanding at March 31, 2021. Upon the adoption of
our 2019 Plan, no further grants were permissible under the 2016
Plan and approximately 1.4 million authorized shares were
transferred to the 2019 Plan and became issuable therefrom. All
options granted from the 2016 Plan remain operative under the terms
of the respective grants.
Description of the 2019 Plan
Our
Board approved the VistaGen Therapeutics, Inc. 2019 Omnibus Equity
Incentive Plan on May 27, 2019, and our stockholders adopted it and
ratified all previously issued grants on September 5, 2019. The
principal features of the 2019 Plan are summarized
below.
The 2019 Plan provides for the grant of stock options, stock
appreciation rights (
SARs
), restricted stock, restricted stock units, and
other stock-based awards, and performance awards, collectively
referred to as “Awards”. Awards may be granted under
the 2019 Plan to officers, employees and consultants of the Company
and our subsidiaries and to our non-employee directors. Incentive
stock options may be granted only to employees of the Company or
one of our subsidiaries. The 2019 Plan is administered by the
Compensation Committee of the Board. The Compensation Committee, in
its discretion, selects the individuals to whom awards may be
granted, the time or times at which such awards are granted, and
the terms of such awards. The Compensation Committee may delegate
its authority to the extent permitted by applicable
law.
-111-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Compensation Committee sets stock option exercise prices and
terms, except that stock options must be granted with an exercise
price not less than 100% of the fair market value of the common
stock on the date of grant. The Compensation Committee may grant
either incentive stock options, which must comply with Section 422
of the Code, or nonqualified stock options. At the time of grant,
the Compensation Committee determines the terms and conditions of
stock options, including the quantity, exercise price, vesting
periods, term (which cannot exceed ten years) and other conditions
on exercise.
The Compensation Committee may grant SARs as a right in tandem with
the number of shares underlying stock options granted under the
2019 Plan or as a freestanding award. Upon exercise, SARs entitle
the holder to receive payment per share in stock or cash, or in a
combination of stock and cash, equal to the excess of the
share’s fair market value on the date of exercise over the
grant price of the SAR.
The Compensation Committee may also grant awards of restricted
stock, which are shares of common stock subject to specified
restrictions, and restricted stock units, which represent the right
to receive shares of the common stock in the future. These awards
may be made subject to repurchase, forfeiture or vesting
restrictions at the Compensation Committee’s discretion. The
restrictions may be based on continuous service with the Company or
the attainment of specified performance goals, as determined by the
Compensation Committee. Stock units may be paid in stock or cash or
a combination of stock and cash, as determined by the Compensation
Committee.
The Compensation Committee may condition the grant, exercise,
vesting, or settlement of any award on such performance conditions
as it may specify. We refer to these awards as “performance
awards.” The Compensation Committee may select such business
criteria or other performance measures as it may deem appropriate
in establishing any performance conditions. At March 31, 2021, the
Compensation Committee has not granted any performance
awards.
A total of 7,500,000 shares of common stock were initially
authorized for issuance under the 2019 Plan. As noted previously,
all awards outstanding under the 2016 Plan at the time the 2019
Plan was adopted remain subject to the 2016 Plan. Upon approval of
the 2019 Plan, all shares of common stock remaining authorized and
available for issuance under the 2016 Plan, approximately 1.4
million shares, automatically became available for issuance under
the 2019 Plan. Additionally, any shares subject to outstanding
awards under the 2016 Plan that subsequently expire, terminate, or
are surrendered or forfeited for any reason without issuance of
shares also become available for issuance under the 2019 Plan.
Further, if any award under the 2019 Plan is canceled, terminates,
expires or lapses for any reason prior to the issuance of shares or
if shares are issued under the 2019 Plan and thereafter are
forfeited to us, the shares subject to such awards and the
forfeited shares will again be available for grant under the 2019
Plan. At March 31, 2021, a total of 1,843,158 shares remain
available for grant under the 2019 Plan.
No more than 25% of any equity-based awards granted under the 2019
Plan may vest on the grant date of such award. This requirement
does not apply to (i) substitute awards resulting from acquisitions
or (ii) shares delivered in lieu of fully vested cash awards. In
addition, the minimum vesting requirement does not apply to the
Compensation Committee’s discretion to provide for
accelerated exercisability or vesting of any award, including in
cases of retirement, death, disability or a change in control, in
the terms of the award or otherwise. Awards are not transferable
other than by will or the laws of descent and distribution, except
that in certain instances transfers may be made to or for the
benefit of designated family members of the participant for no
consideration.
In the event of a change in control of the Company, the
Compensation Committee may accelerate the time period relating to
the exercise of any award. In addition, the Compensation
Committee may take other action, including (a) providing for the
purchase of any award for an amount of cash or other property that
could have been received upon the exercise of such award had the
award been currently exercisable, (b) adjusting the terms of the
award in a manner determined by the Compensation Committee to
reflect the change in control, or (c) causing an award to be
assumed, or new rights substituted therefor, by another entity with
appropriate adjustments to be made regarding the number and kind of
shares and exercise prices of the award. “Change in
Control” is defined under the 2019 Plan and requires
consummation of the applicable transaction.
Unless earlier terminated by the Board, the 2019 Plan will
terminate, and no further awards may be granted, on September 5,
2029, which is ten years after the date on which it was approved by
our stockholders. The Board may amend, suspend or terminate the
2019 Plan at any time.
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 2019 Plan in such a manner and to such a degree as
required.
The amendment, suspension or
termination of the 2019 Plan or the amendment of an outstanding
award generally may not, without a participant’s consent,
materially impair the participant’s rights under an
outstanding award.
During our fiscal year ended March 31, 2021, we granted options to
purchase an aggregate of 4,990,000 shares of our common stock from
the 2019 Plan as follows:
●
options
to purchase an aggregate of 1,580,000 shares of our common stock at
a price of $0.398 per share to independent members of our Board,
our officers and employees and certain consultants and advisors in
April 2020. The options vested 25% upon grant with the remaining
shares vesting ratably over two years;
-112-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
●
options
to purchase an aggregate of 365,000 shares of our common stock at
prices of between $0.42 and $0.55 per share to various investor and
public relations and scientific consultants in May and June 2020.
The options vested 25% upon grant with the remaining shares vesting
ratably monthly over one year;
●
options
to purchase an aggregate of 195,000 shares of our common stock at
prices of between $0.62 and $0.73 per share to various investor and
public relations and scientific consultants in August through
October 2020. Certain grants vested 25% upon grant with the
remaining shares vesting ratably over one year or three years;
other options vested monthly over a period of one year or two
years;
●
options
to purchase 200,000 shares of our common stock at a price of
$0.7889 per share to a new research and development employee in
December 2020. The options vest 25% on the first anniversary of the
grant date with the remaining shares vesting ratably monthly over
the next 4 years;
●
options
to purchase an aggregate of 1,375,000 shares of our common stock at
a price of $1.77 per share to independent members of our Board, our
officers and employees in December 2020 following the December 2020
Public Offering. The options vested 25% upon grant with the
remaining shares vesting ratably over two years; and
●
options
to purchase 1,275,000 shares of our common stock at prices from
$1.99 to $2.55 per share to new employees during February and March
2021. The options vest 25% on the first anniversary of the grant
date with the remaining shares vesting ratably monthly over the
next 3 years.
During our fiscal year ended March 31, 2020, we granted options to
purchase an aggregate of 3,455,000 shares of our common stock from
the 2019 Plan and the 2016 Plan as follows:
●
options
from the 2016 Plan to purchase an aggregate of 1,220,000 shares of
our common stock at a then above-market exercise price of $1.00 per
share to the independent members of our Board, our officers and
employees and certain consultants in May 2019. The options vested
25% upon grant with the remaining shares vesting ratably over three
years for independent directors, officers and employees, and over
two years for consultants;
●
options
from the 2019 Plan to one of our officers to purchase 170,000
shares of our common stock at a then above-market exercise price of
$1.00 per share, which May 2019 grant was contingent upon the
approval of the 2019 Plan by our stockholders. Our stockholders
approved the 2019 Plan at our Annual Meeting in September 2019 and
ratified the contingent grant. The option vested 25% upon approval
of the 2019 Plan and the remaining shares are vesting ratably over
three years;
●
options
from our 2019 Plan to the independent members of our Board, our
officers and employees and certain consultants to purchase an
aggregate of 1,990,000 shares of our common stock at exercise
prices ranging from $0.50 per share to $1.41 per share during the
quarter ended December 31, 2019. Options granted to Board members,
officers, employees and most consultants were vested 25% at grant,
with the remaining options vesting ratably over the following 24
months. In the case of options granted to certain consultants, the
options were vested 25% at grant but the remaining vesting period
was less than 24 months to coincide with remaining contractual
terms;
●
options
from our 2019 Plan to purchase 75,000 shares of our common stock at
an exercise price of $0.7074 per share to a consultant as partial
compensation under a professional services contract in January
2020. The options were vested 25% upon grant with the remaining
shares vesting ratably over the next twelve months.
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, 2021 and 2020.
|
|
Fiscal Years Ended March 31,
|
|
|
|
2021
|
2020
|
|
|
|
|
|
Research
and development expense
|
$
746,900
|
$
1,287,200
|
|
|
|
|
|
General
and administrative expense
|
1,559,200
|
2,533,600
|
|
|
|
|
|
Total
stock-based compensation expense
|
$
2,306,100
|
$
3,820,800
|
-113-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Expense amounts reported above include $7,500 and $2,500 in
research and development expense for the fiscal years ended March
31, 2021 and 2020, respectively, and $6,800 and $1,500 in general
and administrative expense for the fiscal years ended March 31,
2021 and 2020, respectively, attributable to our 2019 Employee
Stock Purchase Plan (the
2019 ESPP
), described below.
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, 2021 and 2020:
|
|
Fiscal Years Ended March 31,
|
|
|
|
2021
|
2020
|
|
|
(weighted
average)
|
(weighted
average)
|
|
Exercise
price
|
$
1.27
|
$
1.14
|
|
Market
price on date of grant
|
$
1.27
|
$
1.05
|
|
Risk-free
interest rate
|
0.53
%
|
1.79
%
|
|
Expected
term (years)
|
5.58
|
5.41
|
|
Volatility
|
83.79
%
|
86.99
%
|
|
Expected
dividend yield
|
0.00
%
|
0.00
%
|
|
|
|
|
|
Fair
value per share at grant date
|
$
0.87
|
$
0.73
|
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 the relatively
limited period during which our stock has been publicly traded on a
major exchange 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 stock option activity for the fiscal
years ended March 31, 2021 and 2020 under the 2019 Plan and the
2016 Plan:
|
|
Fiscal Years Ended March 31,
|
|||
|
|
2021
|
2020
|
||
|
|
|
|
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
Average
|
|
Average
|
|
|
Number
of
|
Exercise
|
Number
of
|
Exercise
|
|
|
Shares
|
Price
|
Shares
|
Price
|
|
|
|
|
|
|
|
Options
outstanding at beginning of period
|
10,003,088
|
$
1.36
|
6,626,088
|
$
1.48
|
|
Options
granted
|
4,990,000
|
$
1.27
|
3,455,000
|
$
1.14
|
|
Options
exercised
|
(355,000
)
|
$
0.89
|
-
|
$
-
|
|
Options
forfeited
|
-
|
$
-
|
-
|
$
-
|
|
Options
expired
|
-
|
$
-
|
(78,000
)
|
$
1.50
|
|
|
|
|
|
|
|
Options
outstanding at end of period
|
14,638,088
|
$
1.34
|
10,003,088
|
$
1.36
|
|
Options
exercisable at end of period
|
10,732,059
|
$
1.29
|
7,936,290
|
$
1.39
|
|
|
|
|
|
|
|
Weighted
average grant-date fair value of
|
|
|
|
|
|
options
granted during the period
|
|
$
0.87
|
|
$
0.73
|
-114-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information on stock options
outstanding and exercisable under the 2019 Plan and the 2016 Plan
as of March 31, 2021:
|
|
Options
Outstanding
|
Options
Exercisable
|
|||
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
Weighted
|
|
Weighted
|
|
|
|
Remaining
|
Average
|
|
Average
|
|
Exercise
|
Number
|
Years
until
|
Exercise
|
Number
|
Exercise
|
|
Price
|
Outstanding
|
Expiration
|
Price
|
Exercisable
|
Price
|
|
|
|
|
|
|
|
|
$
0.398 to $0.89
|
2,590,000
|
9.12
|
$
0.48
|
1,574,795
|
$
0.45
|
|
$
0.90 to $1.18
|
3,240,000
|
7.42
|
$
1.09
|
2,871,049
|
$
1.10
|
|
$
1.19 to $1.46
|
2,500,000
|
8.13
|
$
1.36
|
2,155,468
|
$
1.35
|
|
$
1.47 to $1.63
|
3,177,253
|
5.85
|
$
1.52
|
3,177,253
|
$
1.52
|
|
$
1.64 to $15.00
|
3,130,835
|
9.40
|
$
2.14
|
953,494
|
$
2.38
|
|
|
14,638,088
|
7.92
|
$
1.34
|
10,732,059
|
$
1.29
|
At March 31, 2021, there were 1,843,158 registered shares of our
common stock remaining available for grant under the 2019
Plan. Two members of our Board and certain consultants
exercised options to purchase an aggregate of 355,000 shares of our
common stock during the fiscal year ended March 31, 2021. There
were no option exercises during the fiscal year ended March 31,
2020.
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 $2.13 per share quoted closing market price of our
common stock on March 31, 2021, there was approximately $12,205,000
of intrinsic value in our outstanding options at that
date.
As of March 31, 2021, there was approximately $3,852,300 of
unrecognized compensation cost related to non-vested share-based
compensation awards from the 2019 Plan and the 2016 Plan, which
cost is expected to be recognized through November
2023.
2019 Employee Stock Purchase Plan
Our Board approved the VistaGen Therapeutics, Inc. 2019 Employee
Stock Purchase Plan (the 2019 ESPP) on June 13, 2019. Our
stockholders approved the 2019 ESPP at our annual meeting on
September 5, 2019. The principal terms of our 2019 ESPP are
summarized below.
The 2019 ESPP is intended to qualify as an “employee stock
purchase plan” under Section 423 of the Code. The
Compensation Committee of the Board administers the 2019 ESPP. The
Compensation Committee has authority to construe, interpret and
apply the terms of the 2019 ESPP. As approved by our stockholders,
a maximum of 1,000,000 shares of our common stock may be purchased
under the 2019 ESPP.
The 2019 ESPP is generally expected to operate in consecutive
semi-annual periods referred to as “option periods.”
The first option period commenced on January 1, 2020 and ended on
the last trading day in the semi-annual period ended June 30, 2020,
with successive option periods expected to begin on the first day
of January and July and to terminate on the last trading day of
June and December, respectively. Option periods may not last longer
than the maximum period permitted under Section 423 of the
Code, which generally limits the length of such offerings to either
5 years or 27 months, depending on the terms of the offering.
Generally, all full-time employees of the Company and its
subsidiaries are eligible to participate in an option
period.
On the first day of each option period (the
Grant Date
), each eligible employee for that option period
will be granted an option to purchase shares of our common stock.
Each participant’s option will permit the participant to
purchase a number of shares determined by dividing the
employee’s accumulated payroll deductions for the option
period by the applicable purchase price. A participant must
designate the percentage (if any) of compensation to be deducted
during that option period for the purchase of stock under the 2019
ESPP. The participant’s payroll deduction election will
generally remain in effect for future option periods unless
terminated by the participant. A participant may elect to withdraw
from any option period prior to the last day of the option period,
in which case the participant’s payroll deductions will be
refunded and the participant’s outstanding options will
terminate.
Each participant’s payroll deductions under the 2019 ESPP
will be credited to a liability account in his or her name under
the 2019 ESPP. The aggregate liability for participant payroll
deductions at March 31, 2021 and 2020 was $18,600 and $14,700,
respectively, which amounts are included in accrued expenses in the
accompanying Consolidated Balance Sheet at those
dates.
-115-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Each option granted under the 2019 ESPP will automatically be
exercised on the last day of the respective option period (referred
to as the
Exercise
Date
). The number of shares
acquired by a participant upon exercise of his or her option will
be determined by dividing the participant’s 2019 ESPP account
balance as of the Exercise Date for the option period by the
purchase price of the option. The purchase price for each option is
generally equal to the lesser of (i) 85% of the fair market
value of a share of our common stock on the applicable Grant Date,
or (ii) 85% of the fair market value of a share of our common
stock on the applicable Exercise Date. A participant’s 2019
ESPP account will be reduced upon exercise of his or her option by
the amount used to pay the purchase price of the shares acquired by
the participant. Following exercise of the option, any excess
amount in a participant’s account will be refunded following
the Exercise Date. No interest will be paid to any participant
under the 2019 ESPP.
Participation in the 2019 ESPP is subject to the following
limits:
|
|
●
|
A participant cannot contribute less than 1% or more than 15% of
his or her compensation to the purchase of stock under the 2019
ESPP in any one payroll period;
|
|
|
●
|
A participant cannot accrue rights to purchase more than $25,000 of
stock (valued at the Grant Date of the applicable offering period
and without giving effect to any discount reflected in the purchase
price for the stock) for each calendar year in which an option is
outstanding; and
|
|
|
●
|
A participant will not be granted an option under the 2019 ESPP if
it would cause the participant to own stock and/or hold outstanding
options to purchase common stock constituting 5.0% or more of the
total combined voting power or value of all classes of stock of the
Company or of one of its subsidiaries or to the extent it would
exceed certain other limits under the Code.
|
The $25,000 annual purchase and the 5% ownership limitations
referred to above are required under the Code.
As is customary, the number of shares of stock available under the
2019 ESPP or subject to outstanding options, is subject to
adjustment in the event of certain reorganizations, combinations,
recapitalization of shares, stock splits, reverse stock split,
subdivision or other similar change in respect of our common stock.
A participant’s rights with respect to options or the
purchase of shares under the 2019 ESPP, as well as payroll
deductions credited to his or her 2019 ESPP account, may not be
assigned, transferred, pledged or otherwise disposed of in any way
except by will or the laws of descent and
distribution.
The Board generally may amend, suspend, or terminate the 2019 ESPP
at any time and in any manner, except that stockholder approval is
required to increase the number of shares authorized for issuance
under the 2019 ESPP and for certain other amendments. No amendment
to the 2019 ESPP may materially adversely affect the option rights
previously granted to a participant under the 2019 ESPP, except as
required by law or regulation.
Our 2019 ESPP became effective on January 1, 2020 and will continue
in effect until the earlier of such time as all of the shares of
the Company’s common stock subject to the 2019 ESPP have been
sold or December 31, 2030, unless terminated earlier by the Board.
During the fiscal year ended March 31, 2021, employees purchased an
aggregate of 58,125 shares of common stock under the 2019 ESPP and
the Company received proceeds of $26,200.
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
Consulting Agreement
We have
we engaged a consulting firm headed by one of the independent
members of our Board to provide various market research studies,
competitive analyses, and commercial advisory projects for certain
of our CNS pipeline candidates pursuant to which we recorded
expense of $193,000 and $108,400 for the fiscal years ended March
31, 2021 and 2020, respectively. We recorded no accounts payable or
accrued expenses related to such services at March 31, 2021 or
2020.
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 our cash flows.
-116-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2021 or
2020.
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 at March 31, 2021 or 2020.
Leases
Financing Lease
At March 31, 2021 and 2020, the following assets are subject to
financing lease obligations and included in property and
equipment:
|
|
March
31,
|
March
31,
|
|
|
2021
|
2020
|
|
|
|
|
|
Office equipment
subject to financing lease
|
$
14,700
|
$
14,700
|
|
Accumulated
depreciation
|
(12,400
)
|
(9,400
)
|
|
|
|
|
|
Net book value of
office equipment subject to
|
|
|
|
financing
lease
|
$
2,300
|
$
5,300
|
|
|
|
|
Amortization expense for assets recorded under financing leases is
included in depreciation expense. Future minimum payments, by
year and in the aggregate, required under our financing lease are
as follows:
|
Fiscal
Year Ending March 31,
|
|
|
2022
|
$
3,200
|
|
|
|
|
Future
minimum lease payments
|
3,200
|
|
|
|
|
Less
imputed interest included in minimum lease payments
|
(200
)
|
|
|
|
|
Present
value of minimum lease payments
|
3,000
|
|
|
|
|
Less
current portion
|
(3,000
)
|
|
|
|
|
Financing
lease obligation - non-current portion
|
$
-
|
|
|
|
Operating Lease
We lease our headquarters office and laboratory space in South San
Francisco, California under the terms of a lease that expires on
July 31, 2022 and that provides an option to renew for an
additional five years at then-current market rates. Consistent with
the guidance in ASC 842, effective beginning April 1, 2019, we have
recorded this lease in our Consolidated Balance Sheet as an
operating lease. For the purpose of determining the right-of-use
asset and associated lease liability, upon our adoption of ASC 842,
we determined that the renewal of this lease was reasonably
probable. The lease of our South San Francisco facilities does
not include any restrictions or covenants requiring special
treatment under ASC 842.
-117-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the presentation of the operating
lease in our Condensed Consolidated Balance Sheet at March 31, 2021
and 2020:
|
|
As of March 31, 2021
|
As of March 31, 2020
|
|
Assets
|
|
|
|
Right
of use asset – operating lease
|
$
3,219,600
|
$
3,579,600
|
|
|
|
|
|
Liabilities
|
|
|
|
Current
operating lease obligation
|
$
364,800
|
$
313,400
|
|
Non-current
operating lease obligation
|
3,350,800
|
3,715,600
|
|
Total
operating lease liability
|
$
3,715,600
|
$
4,029,000
|
The following table summarizes the effect of operating lease costs
in our consolidated statements of operations:
|
|
For the Fiscal Year Ended
|
For the Fiscal Year Ended
|
|
|
March 31, 2021
|
March 31, 2020
|
|
Operating
lease cost
|
$
838,200
|
$
822,300
|
The minimum (base rental) lease payments related to our South San
Francisco operating lease are expected to be as
follows:
|
Fiscal Years Ending March 31,
|
|
|
2022
|
$
668,400
|
|
2023
|
726,000
|
|
2024
|
766,000
|
|
2025
|
789,000
|
|
2026
|
812,700
|
|
Thereafter
|
1,118,700
|
|
Total
lease expense
|
4,880,800
|
|
Less
imputed interest
|
(1,165,200
)
|
|
Present
value of operating lease liabilities
|
$
3,715,600
|
The remaining lease term, including the assumed five-year extension
at the expiration of the current lease period, and the discount
rate assumption for our South San Francisco operating lease is as
follows:
|
|
|
As of March 31, 2021
|
|
|
Assumed remaining lease term in years
|
|
6.33
|
|
|
Assumed discount rate
|
|
8.54%
|
|
The interest rate implicit in lease contracts is typically not
readily determinable and, as such, we used our estimated
incremental borrowing rate based on information available at the
adoption of ASC 842, which represents an internally developed rate
that would be incurred to borrow, on a collateralized basis, over a
similar term, an amount equal to the lease payments in a similar
economic environment.
Supplemental disclosure of cash flow information related to our
operating leases included in cash flows used by operating
activities in the consolidated statements of cash flows is as
follows:
|
|
For the Fiscal Year Ended
|
For the Fiscal Year Ended
|
|
|
March 31, 2021
|
March 31, 2020
|
|
Cash
paid for amounts included in the measurement of lease
liabilities
|
$
791,600
|
$
753,900
|
During the fiscal years end March 31, 2021 and 2020, other than the
April 1, 2019 initial adoption of ASC 842 that required right of
use assets and lease liabilities to be recorded, we recorded no new
right of use assets arising from new lease
liabilities.
We also lease a small office in the San Francisco Bay Area under a
month-to-month arrangement at insignificant cost and have made an
accounting policy election not to apply the ASC 842 operating lease
recognition requirements to such short-term lease. We recognize the
lease payments for this lease in general and administrative expense
over the lease term. We recorded rent expense of $14,200 and
$14,000 for the fiscal years ended March 31, 2021 and 2020,
respectively, attributable to this lease.
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, 2021:
-118-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Conversion of Series D Preferred Stock
From April 5, 2021 to April 22,2021, holders of an aggregate of
402,149 shares of our Series D Preferred converted such shares into
9,249,427 shares of our registered common stock, following which no
shares of Series D Preferred remained outstanding.
Exercise of Warrants
From April 1, 2021
through the date of this Annual Report,
holders
of outstanding warrants have exercised warrants to purchase an
aggregate of
1,508,768
shares
of our common stock and we have received cash proceeds of
approximately $1,105,700
. On
May 16, 2021, warrants to purchase 2,705,883 shares of our common
stock at $5.30 per share expired
unexercised.
Grant of Options from 2019 Plan
From
April 1, 2021 through the date of this Annual Report, we granted
options to purchase 575,000 shares of our common stock under the
terms of our 2019 Plan to three newly-hired executives and a new
independent member of our Board. The options have an exercise price
equal to the quoted closing market price of our common stock on the
Nasdaq Capital Market on the respective date of grant, a term of
ten years and vest 25% on the first anniversary of the grant date
and ratably on a monthly basis for three years
thereafter.
Termination of LPC Agreement
On June
25, 2021, in accordance with its provisions, we voluntarily
terminated the LPC Agreement and we will sell no additional shares
of our common stock under that agreement.
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,
2021. 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,
2020
|
September 30,
2020
|
December 31,
2020
|
March 31,
2021
|
Fiscal Year
2021
|
|
|
|
|
|
|
|
|
Sublicense
revenue
|
$
-
|
$
334
|
$
314
|
$
442
|
$
1,090
|
|
Total
revenue
|
-
|
334
|
314
|
442
|
1,090
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
Research and
development
|
$
1,731
|
$
2,358
|
$
3,496
|
$
4,891
|
$
12,476
|
|
General and
administrative
|
1,391
|
1,270
|
2,117
|
1,770
|
6,548
|
|
Total
operating expenses
|
3,122
|
3,628
|
5,613
|
6,661
|
19,024
|
|
Loss from
operations
|
(3,122
)
|
(3,294
)
|
(5,299
)
|
(6,219
)
|
(17,934
)
|
|
|
|
|
|
|
|
|
Other income
(expense), net:
|
|
|
|
|
|
|
Interest
income (expense), net
|
(3
)
|
(4
)
|
1
|
8
|
2
|
|
Other
income
|
1
|
-
|
-
|
-
|
1
|
|
|
|
|
|
|
|
|
Loss before income
taxes
|
(3,124
)
|
(3,298
)
|
(5,298
)
|
(6,211
)
|
(17,931
)
|
|
Income
taxes
|
(3
)
|
-
|
-
|
-
|
(3
)
|
|
Net loss and
comprehensive loss
|
(3,127
)
|
(3,298
)
|
(5,298
)
|
(6,211
)
|
(17,934
)
|
|
|
|
|
|
|
|
|
Accrued
dividend on Series B Preferred stock
|
(336
)
|
(347
)
|
(354
)
|
(349
)
|
(1,386
)
|
|
Beneficial
conversion feature on Series D
|
|
|
|
|
|
|
Preferred
stock
|
-
|
-
|
-
|
(23,000
)
|
(23,000
)
|
|
|
|
|
|
|
|
|
Net
loss attributable to common stockholders
|
$
(3,463
)
|
$
(3,645
)
|
$
(5,652
)
|
$
(29,560
)
|
$
(42,320
)
|
|
|
|
|
|
|
|
|
Basic and diluted
net loss per common share
|
|
|
|
|
|
|
attributable
to common stockholders
|
$
(0.07
)
|
$
(0.05
)
|
$
(0.07
)
|
$
(0.20
)
|
$
(0.49
)
|
|
Weighted average
shares used in computing
|
|
|
|
|
|
|
basic and
diluted net loss per common share
|
|
|
|
|
|
|
attributable
to common stockholders
|
51,321,355
|
67,082,935
|
81,086,105
|
145,966,502
|
86,133,644
|
-119-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Three Months Ended
|
Total
|
|||
|
|
June 30,
2019
|
September 30,
2019
|
December 31,
2019
|
March 31,
2020
|
Fiscal Year
2020
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
Research and
development
|
$
4,314
|
$
4,205
|
$
3,015
|
$
1,840
|
$
13,374
|
|
General and
administrative
|
1,910
|
1,146
|
2,948
|
1,423
|
7,427
|
|
Total
operating expenses
|
6,224
|
5,351
|
5,963
|
3,263
|
20,801
|
|
Loss from
operations
|
(6,224
)
|
(5,351
)
|
(5,963
)
|
(3,263
)
|
(20,801
)
|
|
|
|
|
|
|
|
|
Other expenses,
net:
|
|
|
|
|
|
|
Interest
income (expense), net
|
16
|
15
|
2
|
(3
)
|
30
|
|
|
|
|
|
|
|
|
Loss before income
taxes
|
(6,208
)
|
(5,336
)
|
(5,961
)
|
(3,266
)
|
(20,771
)
|
|
Income
taxes
|
(2
)
|
-
|
-
|
(1
)
|
(3
)
|
|
Net loss and
comprehensive loss
|
(6,210
)
|
(5,336
)
|
(5,961
)
|
(3,267
)
|
(20,774
)
|
|
|
|
|
|
|
|
|
Accrued
dividend on Series B Preferred stock
|
(302
)
|
(314
)
|
(322
)
|
(326
)
|
(1,264
)
|
|
Net
loss attributable to common stockholders
|
$
(6,512
)
|
$
(5,650
)
|
$
(6,283
)
|
$
(3,593
)
|
$
(22,038
)
|
|
|
|
|
|
|
|
|
Basic and diluted
net loss per common share
|
|
|
|
|
|
|
attributable
to common stockholders
|
$
(0.15
)
|
$
(0.13
)
|
$
(0.15
)
|
$
(0.08
)
|
$
(0.50
)
|
|
Weighted average
shares used in computing
|
|
|
|
|
|
|
basic and
diluted net loss per common share
|
|
|
|
|
|
|
attributable
to common stockholders
|
42,622,965
|
42,622,965
|
43,158,889
|
47,094,781
|
43,869,523
|
-120-
Item 9.
C
hanges in and
Disagreements With Accountants on Accounting and Financial
Disclosure
None.
Item 9A.
C
ontrols and
Procedures
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, 2021.
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, 2021, 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 existing
during our fiscal year ended March 31, 2021: (i) the size of the
Company’s staff did 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
utilized accounting software that did not prevent erroneous or
unauthorized changes to previous reporting periods and/or could be
adjusted so as to not provide an adequate audit trail of entries
made in the accounting software.
Beginning in April 2021, we have begun to address these material
weaknesses by retaining additional accounting staff to facilitate
appropriate review of accounting transactions and/or accounting
treatment by multiple qualified individuals and by implementing
state-of-the-art accounting software to prevent erroneous or
unauthorized changes to previous reporting periods and/or
adjustments and to provide an adequate auditing 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 had implemented a series of manual
checks and balances to verify that no previous reporting period had
been improperly modified and that no unauthorized entries had 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 during its
fiscal year ended March 31, 2021, 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.
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 our fiscal
year ended March 31, 2021 or thereafter, until such time as we are
no longer eligible for the exemption for smaller issuers set forth
within the Sarbanes-Oxley Act.
Item 9B.
O
ther
Information
Termination of LPC Agreement
On June
25, 2021, in accordance with its provisions, the Company
voluntarily terminated the Purchase Agreement dated March 24, 2020
between the Company and LPC Capital Fund, LLC prior to its March
2022 contractual expiration and will sell no additional shares of
its common stock under such agreement.
Change in Board of Directors Membership
On June
24, 2021, Dr. H. Ralph Snodgrass notified the Company’s Board
of Directors of his intention to step down from his position as a
member of the Company’s Board of Directors, effective June
30, 2021. Dr. Snodgrass will continue to serve as the
Company’s President and Chief Scientific
Officer.
-121-
PART III
Item 10.
D
irectors, 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 2021 Annual Meeting of Stockholders, which
we intend to file with the Securities and Exchange Commission on or
before July 29, 2021 pursuant to General Instruction G(3) of Form
10-K.
Item 11.
E
xecutive
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 2021 Annual Meeting of Stockholders, which
we intend to file with the Securities and Exchange Commission on or
before July 29, 2021 pursuant to General Instruction G(3) of Form
10-K.
Item 12.
S
ecurity 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 2021 Annual Meeting of Stockholders, which
we intend to file with the Securities and Exchange Commission on or
before July 29, 2021 pursuant to General Instruction G(3) of Form
10-K.
Item 13.
C
ertain 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 2021 Annual Meeting of Stockholders, which
we intend to file with the Securities and Exchange Commission on or
before July 29, 2021 pursuant to General Instruction G(3) of Form
10-K.
Item 14.
P
rincipal 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 2021 Annual Meeting of Stockholders, which
we intend to file with the Securities and Exchange Commission on or
before July 29, 2021 pursuant to General Instruction G(3) of Form
10-K.
-122-
PART IV
Item 15.
E
xhibits, Financial
Statement Schedules
(a)(1) Financial Statements
See
Index to Financial Statements under Item 8 on
page 82
.
(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.
E
xhibit Index
|
Exhibit
No.
|
Description
|
|
Open
Market Sale Agreement
SM
, dated May 14,
2021, by and between VistaGen Therapeutics, Inc. and Jefferies LLC,
incorporated by reference from Exhibit 1.1 to the Company’s
Current Report on Form 8-K filed on May 14, 2021.
|
|
|
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.
|
|
|
Certificate
of Amendment to the Restated and Amended Articles of Incorporation,
as amended, of VistaGen Therapeutics, Inc., dated September 6
,2019; incorporated by reference from Exhibit 3.1 to the
Company’s Current Report on Form 8-K, filed on September 6,
2019.
|
|
|
Certificate
of Designation of the Relative Rights and Preferences of the Series
D Convertible Preferred Stock of VistaGen Therapeutics, Inc., filed
with the Nevada Secretary of State on December 21, 2020,
incorporated by reference from Exhibit 3.1 to the Company’s
Current Report on Form 8-K filed on December 22, 2020.
|
|
|
Certificate
of Amendment to the Restated and Amended Articles of Incorporation,
as amended, of VistaGen Therapeutics, Inc., dated March 5, 2021,
incorporated by reference from Exhibit 3.1 to the Company’s
Current Report on Form 8-K, filed on March 5, 2021.
|
|
License
Agreement by and between Mount Sinai School of Medicine of New York
University and the Company, dated October 1, 2004.
|
|
|
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.
|
-123-
|
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.
|
-124-
|
|
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.
|
|
|
|
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, incorporated by
reference from Exhibit 10.136 to the Company’s Annual Report
on Form 10-K filed on June 25, 2019.
|
|
|
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., incorporated by
reference from Exhibit 10.138 to the Company’s Annual Report
on Form 10-K filed on June 25, 2019.
|
|
VistaGen
Therapeutics, Inc. 2019 Omnibus Equity Incentive Plan, incorporated
by reference from Exhibit 99.1 to the Company’s Registration
Statement on Form S-8 filed on October 1, 2019.
|
|
|
VistaGen
Therapeutics, Inc. 2019 Employee Stock Purchase Plan, incorporated
by reference from Exhibit 99.2 to the Company’s Registration
Statement on Form S-8 filed on October 1, 2019.
|
|
|
Form of
Fall 2019 Private Placement Subscription Agreement, incorporated by
reference from Exhibit 10.1 to the Company’s Quarterly Report
on Form 10-Q filed on November 7, 2019.
|
|
|
Form of
Fall 2019 Private Placement Warrant, incorporated by reference from
Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q
filed on November 7, 2019.
|
|
|
|
Form of
Securities Purchase Agreement, dated January 24, 2020 between the
Company and each purchaser named in the signature pages thereto,
incorporated by reference from Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on January 27, 2020.
|
|
Form of
Warrant, dated January 24, 2020, incorporated by reference from
Exhibit 10.2 to the Company’s Current Report on Form 8-K
filed on January 27, 2020.
|
-125-
|
|
Purchase
Agreement, by and between VistaGen Therapeutics, Inc. and Lincoln
Park Capital Fund, LLC, dated March 24, 2020, incorporated by
reference from Exhibit 10.1 to the Company's Current Report on Form
8-K, filed March 26, 2020.
|
|
|
Registration
Rights Agreement, by and between VistaGen Therapeutics, Inc. and
Lincoln Park Capital Fund, LLC, dated March 24, 2020, incorporated
by reference from Exhibit 10.2 to the Company's Current Report on
Form 8-K, filed March 26, 2020
|
|
|
Note
Payable Agreement by and between VistaGen Therapeutics, Inc. and
Silicon Valley Bank, dated April 22, 2020, incorporated by
reference from Exhibit 10.1 to the Company's Current Report on Form
8-K, filed April 27, 2020.
|
|
|
License
and Collaboration Agreement between VistaGen Therapeutics, Inc. and
EverInsight Therapeutics Inc. incorporated by reference from
Exhibit 10.1 to the Company’s Current Report on Form 8-K,
filed June 26, 2020.
|
|
|
Underwriting
Agreement, dated August 2, 2020, by and between VistaGen
Therapeutics, Inc. and Maxim Group, LLC incorporated by reference
from Exhibit 1.1 to the Company’s Current Report on Form 8-K
filed on August 6, 2020.
|
|
|
Underwriting
Agreement, dated December 18, 2020 by and among VistaGen
Therapeutics, Inc., Jefferies LLC and William Blair & Company,
L.L.C. incorporated by reference from Exhibit 1.1 to the
Company’s Current Report on Form 8-K filed on December 22,
2020.
|
|
|
Indemnification
Agreement, dated April 26, 2021, by and between VistaGen
Therapeutics, Inc. and Joanne Curley, Ph.D. incorporated by
reference from Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed on April 27, 2021.
|
|
21.1
|
List of Subsidiaries, 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.
#
Pursuant
to Item 601(b)(10) of Regulation S-K, certain confidential
portions of this exhibit (indicated by “[*****]”)
have been omitted as the Company has determined (i) the omitted
information is not material and (ii) the omitted information would
likely cause harm to the Company if publicly
disclosed.
-126-
S
IGNATURES
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
29th
day
of June, 2021.
|
|
|
VistaGen Therapeutics, Inc.
|
|
|
|
|
|
Date: June
29,
2021
|
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 29, 2021
|
|
|
|
|
||
|
/s/ Jerrold
D. Dotson
Jerrold D. Dotson
|
|
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
June 29, 2021
|
|
|
|
|
||
|
/s/ H.
Ralph
Snodgrass
H. Ralph Snodgrass, Ph.D
|
|
President, Chief Scientific Officer and Director
|
|
June 29, 2021
|
|
|
|
|
||
|
/s/ Jon
S. Saxe
Jon S. Saxe
|
|
Chairman of the Board of Directors
|
|
June 29, 2021
|
|
|
|
|
||
|
/s/ Ann M.
Cunningham
Ann M. Cunningham
|
|
Director
|
|
June 29, 2021
|
|
|
|
|
|
|
|
/s/ Joanne Curley,
Ph.D
Joanne Curley, Ph.D.
|
|
Director
|
|
June
29, 2021
|
|
|
|
|
|
|
|
/s/ Jerry B. Gin,
Ph.D
Jerry B. Gin, Ph.D.
|
|
Director
|
|
June
29, 2021
|
|
|
|
|
|
|
|
/s/ Brian J.
Underdown
Brian J. Underdown, Ph. D
|
|
Director
|
|
June
29, 2021
|
|
|
|
|
|
|
-127-
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 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart 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 Schedules