VISTAGEN THERAPEUTICS, INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
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☑
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2019
or
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from
to
.
Commission File Number: 001-37761
VistaGen Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
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Nevada
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20-5093315
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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343 Allerton Avenue
South San Francisco, CA 94080
(Address of principal executive offices including zip
code)
(650) 577-3600
(Registrant’s telephone number, including area
code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such
files). Yes
☒
No
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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||
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Large accelerated filer
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[ ]
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Accelerated filer
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[ ]
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Non-Accelerated filer
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[ ]
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Smaller reporting company
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[X]
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Emerging growth company
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[ ]
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
[ ]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which
registered
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Common
Stock, par value $0.001 per share
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VTGN
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Nasdaq
Capital Market
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As of November 6, 2019, 43,222,965 shares of the registrant’s
common stock, $0.001 par value, were issued and
outstanding.
Vi
s
taGen Therapeutics, Inc.
Quarterly Report on Form 10-Q
for the Quarter Ended September 30, 2019
TABLE OF CONTENTS
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Page
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1
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2
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3
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4
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5
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15
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28
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29
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29
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63
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63
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63
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64
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PAR
T
I. FINANCIAL
INFORMATION
Item 1. Condensed Consolidated Financial Statements
(Unaudited)
VISTAGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Dollars, except share amounts)
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September 30,
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March 31,
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2019
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2019
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(Unaudited)
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(Note 2)
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$
4,072,400
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$
13,100,300
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Receivable
from supplier
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-
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300,000
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Prepaid
expenses and other current assets
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604,500
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250,900
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Total
current assets
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4,676,900
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13,651,200
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Property
and equipment, net
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260,600
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312,700
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Right
of use asset - operating lease
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3,750,200
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-
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Security
deposits and other assets
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47,800
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47,800
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Total
assets
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$
8,735,500
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$
14,011,700
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LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
EQUITY
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Current
liabilities:
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Accounts
payable
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$
1,449,800
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$
1,055,000
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Accrued
expenses
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2,215,500
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1,685,600
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Current
notes payable
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159,300
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57,300
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Operating
lease oligation
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289,600
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-
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Financing
lease obligation
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3,100
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3,000
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Total
current liabilities
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4,117,300
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2,800,900
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Non-current
liabilities:
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Accrued
dividends on Series B Preferred Stock
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4,364,500
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3,748,200
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Deferred
rent liability
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-
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381,100
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Operating
lease obligation
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3,879,400
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-
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Financing
lease obligation
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4,700
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6,300
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Total
non-current liabilities
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8,248,600
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4,135,600
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Total
liabilities
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12,365,900
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6,936,500
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Commitments
and contingencies
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Stockholders’
(deficit) equity:
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Preferred
stock, $0.001 par value; 10,000,000 shares authorized at September
30, 2019 and March 31, 2019:
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Series
A Preferred, 500,000 shares authorized, issued and outstanding at
September 30, 2019 and March 31, 2019
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$
500
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$
500
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Series
B Preferred; 4,000,000 shares authorized at September 30, 2019 and
March 31, 2019; 1,160,240 shares
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issued
and outstanding at September 30, 2019 and March 31,
2019
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1,200
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1,200
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Series
C Preferred; 3,000,000 shares authorized at September 30, 2019 and
March 31, 2019; 2,318,012 share
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issued
and outstanding at September 30, 2019 and March 31,
2019
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2,300
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2,300
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Common
stock, $0.001 par value; 175,000,000 and 100,000,000 shares
authorized at September 30, 2019 and
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March
31, 2019, respectively; 42,758,630 shares issued and outstanding at
September 30, 2019 and March 31, 2019
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42,800
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42,800
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Additional
paid-in capital
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192,970,100
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192,129,900
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Treasury
stock, at cost, 135,665 shares of common stock held at September
30, 2019 and March 31, 2019
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(3,968,100
)
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(3,968,100
)
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Accumulated
deficit
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(192,679,200
)
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(181,133,400
)
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Total
stockholders’ (deficit) equity
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(3,630,400
)
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7,075,200
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Total
liabilities and stockholders’ (deficit) equity
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$
8,735,500
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$
14,011,700
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See accompanying notes to Condensed Consolidated Financial
Statements.
VI
S
TAGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
(Unaudited)
(Amounts in dollars, except share amounts)
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Three Months Ended September 30,
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Six Months Ended September 30,
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2019
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2018
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2019
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2018
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Operating
expenses:
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Research
and development
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$
4,205,200
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$
5,261,100
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$
8,519,100
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$
8,004,800
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General
and administrative
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1,146,100
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2,171,000
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3,056,200
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3,637,300
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Total
operating expenses
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5,351,300
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7,432,100
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11,575,300
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11,642,100
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Loss
from operations
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(5,351,300
)
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(7,432,100
)
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(11,575,300
)
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(11,642,100
)
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Other
income (expenses), net:
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Interest
income (expense), net
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15,400
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(2,900
)
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31,900
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(5,000
)
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Loss
before income taxes
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(5,335,900
)
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(7,435,000
)
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(11,543,400
)
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(11,647,100
)
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Income
taxes
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-
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-
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(2,400
)
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(2,400
)
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Net
loss and comprehensive loss
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$
(5,335,900
)
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$
(7,435,000
)
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$
(11,545,800
)
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$
(11,649,500
)
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Accrued
dividend on Series B Preferred stock
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(313,800
)
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(283,600
)
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(616,300
)
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(557,100
)
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Net
loss attributable to common stockholders
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$
(5,649,700
)
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$
(7,718,600
)
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$
(12,162,100
)
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$
(12,206,600
)
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Basic
and diluted net loss attributable to common
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stockholders
per common share
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$
(0.13
)
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$
(0.30
)
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$
(0.29
)
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$
(0.50
)
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Weighted
average shares used in computing
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basic
and diluted net loss attributable to common
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stockholders
per common share
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42,622,965
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25,815,245
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42,622,965
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24,267,816
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See accompanying notes to Condensed Consolidated Financial
Statements.
VIS
T
AGEN THERAPEUTICS,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Dollars)
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Six Months Ended September 30,
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2019
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2018
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Cash
flows from operating activities:
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Net
loss
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$
(11,545,800
)
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$
(11,649,500
)
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Adjustments to reconcile net loss to net cash used in
operating activities:
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Depreciation
and amortization
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52,100
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37,900
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Stock-based
compensation
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1,456,500
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1,785,000
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Amortization
of fair value of common stock issued for services
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92,100
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207,300
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Fair
value of common stock issued for product licenses and
option
|
-
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2,250,000
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Amortization
of fair value of warrants issued for services
|
13,800
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25,100
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|
Changes
in operating assets and liabilities:
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Receivable
from supplier
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300,000
|
-
|
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Prepaid
expenses and other current assets
|
(229,200
)
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365,400
|
|
Right
of use asset - operating lease
|
164,900
|
-
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Operating
lease liability
|
(127,100
)
|
-
|
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Accounts
payable and accrued expenses
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924,500
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(212,300
)
|
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Deferred
rent
|
-
|
128,000
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Net
cash used in operating activities
|
(8,898,200
)
|
(7,063,100
)
|
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Cash
flows from property and investing activities:
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Construction
of tenant improvements
|
-
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(169,800
)
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Net
cash used in investing activities
|
-
|
(169,800
)
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Cash
flows from financing activities:
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Net
proceeds from issuance of common stock and warrants, including
Units
|
-
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4,778,700
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Proceeds
from exercise of warrants
|
-
|
7,500
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Repayment
of financing lease obligation
|
(1,500
)
|
(1,300
)
|
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Repayment
of notes payable
|
(128,200
)
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(98,700
)
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Net
cash (used in) provided by financing activities
|
(129,700
)
|
4,686,200
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Net
decrease in cash and cash equivalents
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(9,027,900
)
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(2,546,700
)
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Cash
and cash equivalents at beginning of period
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13,100,300
|
10,378,300
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Cash
and cash equivalents at end of period
|
$
4,072,400
|
$
7,831,600
|
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Supplemental
disclosure of noncash activities:
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Insurance
premiums settled by issuing note payable
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$
230,200
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$
160,500
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Accrued
dividends on Series B Preferred
|
$
616,300
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$
557,100
|
VIST
A
GEN THERAPEUTICS,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
(DEFICIT) EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(Unaudited)
(Amounts in Dollars, except share amounts)
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Total
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Additional
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Stockholders' | |
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Series A Preferred Stock
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Series B Preferred Stock
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Series C Preferred Stock
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Common Stock
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Paid-in
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Treasury
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Accumulated
|
Equity
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Shares
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Amount
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Shares
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Amount
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Shares
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Amount
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Shares
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Amount
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Capital
|
Stock
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Deficit
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(Deficit)
|
|
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Balances at March 31, 2018
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500,000
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$
500
|
1,160,240
|
$
1,200
|
2,318,012
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$
2,300
|
23,068,280
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$
23,100
|
$
167,401,400
|
$
(3,968,100
)
|
$
(156,543,800
)
|
$
6,916,600
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Proceeds from sale of common stock and warrants for
|
-
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-
|
-
|
-
|
-
|
-
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40,000
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-
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50,000
|
-
|
-
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50,000
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|
Proceeds
from exercise of warrants
|
-
|
-
|
-
|
-
|
-
|
-
|
5,000
|
-
|
7,500
|
-
|
-
|
7,500
|
|
Accrued
dividends on Series B Preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(273,500
)
|
-
|
-
|
(273,500
)
|
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Stock-based
compensation expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
612,600
|
-
|
-
|
612,600
|
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Fair
value of common stock issued for services
|
-
|
-
|
-
|
-
|
-
|
-
|
100,000
|
100
|
122,900
|
-
|
-
|
123,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the quarter ended June 30, 2018
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(4,214,500
)
|
(4,214,500
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2018
|
500,000
|
$
500
|
1,160,240
|
$
1,200
|
2,318,012
|
$
2,300
|
23,213,280
|
$
23,200
|
$
167,920,900
|
$
(3,968,100
)
|
$
(160,758,300
)
|
$
3,221,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock and warrants for cash in private
placement offering
|
-
|
-
|
-
|
-
|
-
|
-
|
3,783,000
|
3,800
|
4,725,000
|
-
|
-
|
4,728,800
|
|
Accrued
dividends on Series B Preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(283,600
)
|
-
|
-
|
(283,600
)
|
|
Stock-based
compensation expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,172,400
|
-
|
-
|
1,172,400
|
|
Fair value of common stock issued for PH94B license and PH10
option
|
-
|
-
|
-
|
-
|
-
|
-
|
1,630,435
|
1,600
|
2,248,400
|
-
|
-
|
2,250,000
|
|
Fair
value of common stock and warrants issued for services
|
-
|
-
|
-
|
-
|
-
|
-
|
50,000
|
100
|
334,800
|
-
|
-
|
334,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the quarter ended September 30, 2018
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(7,435,000
)
|
(7,435,000
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2018
|
500,000
|
$
500
|
1,160,240
|
$
1,200
|
2,318,012
|
$
2,300
|
28,676,715
|
$
28,700
|
$
176,117,900
|
$
(3,968,100
)
|
$
(168,193,300
)
|
$
3,989,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
dividends on Series B Preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(302,500
)
|
-
|
-
|
(302,500
)
|
|
Stock-based
compensation expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,063,000
|
-
|
-
|
1,063,000
|
|
Net
loss for the quarter ended June 30, 2019
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(6,209,900
)
|
(6,209,900
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2019
|
500,000
|
$
500
|
1,160,240
|
$
1,200
|
2,318,012
|
$
2,300
|
42,758,630
|
$
42,800
|
$
192,890,400
|
$
(3,968,100
)
|
$
(187,343,300
)
|
$
1,625,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
dividends on Series B Preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(313,800
)
|
-
|
-
|
(313,800
)
|
|
Stock-based
compensation expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
393,500
|
-
|
-
|
393,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the quarter ended September 30, 2019
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(5,335,900
)
|
(5,335,900
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2019
|
500,000
|
$
500
|
1,160,240
|
$
1,200
|
2,318,012
|
$
2,300
|
42,758,630
|
$
42,800
|
$
192,970,100
|
$
(3,968,100
)
|
$
(192,679,200
)
|
$
(3,630,400
)
|
See accompanying notes to Condensed Consolidated Financial
Statements.
VIST
A
GEN THERAPEUTICS,
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Description of Business
VistaGen
Therapeutics. Inc., a Nevada corporation (which may be referred to
as
VistaGen
, the
Company
,
we
,
our
, or
us
), is a clinical-stage
biopharmaceutical company committed to developing differentiated
new generation medications for central nervous system (
CNS
) diseases and disorders with high
unmet need. Our product candidate portfolio includes three
differentiated clinical-stage candidates, AV-101, PH10 and PH94B,
which we are developing for multiple CNS indications. We aim to
become a fully-integrated biopharmaceutical company that develops
and commercializes innovative CNS therapies for large and growing
mental health and neurology markets where current treatments are
inadequate to meet the needs of millions of patients and caregivers
worldwide.
AV-101
(4-Chlorokynurenine or 4-Cl-KYN) belongs to a new generation of
investigational medicines in neuropsychiatry and neurology known as
NMDA (N-methyl-D-aspartate) glutamate receptor modulators. The NMDA
receptor is a pivotal receptor in the brain and abnormal NMDA
function is associated with multiple CNS diseases and disorders,
including major depressive disorder (
MDD
), chronic neuropathic pain,
epilepsy, levodopa-induced dyskinesia and many others. AV-101 is an
oral prodrug of 7-Cl-KYNA which binds uniquely at the glycine site
of the NMDA receptor. We are developing AV-101 initially for the
treatment of MDD, a serious neurobiologically-based mood disorder
which is a leading cause of disability globally, affecting
approximately 17 million adults in the United States and nearly 300
million people worldwide according to the U.S. National Institutes
of Health (
NIH
). AV-101 is
currently in development in the U.S. as an adjunctive or add-on
treatment (together with current FDA-approved antidepressants
(SSRIs and SNRIs)) through the ELEVATE study, our U.S.
multi-center, randomized, double-blind, placebo-controlled Phase 2
clinical study to evaluate the efficacy and safety of adjunctive
use of AV-101 in adult MDD patients who have an inadequate response
to standard FDA-approved oral antidepressant therapy (the
ELEVATE Study
). In
addition to the ELEVATE Study, we are collaborating with Baylor
College of Medicine (
Baylor
) and the U.S. Department of
Veterans Affairs (
VA
) on a
small Phase 1b clinical trial of AV-101 in healthy volunteer U.S.
Military Veterans from Operation Enduring Freedom, Operation Iraqi
Freedom or Operation New Dawn to define a dose-response
relationship between AV-101 and relevant biomarkers related to NMDA
receptor function and other biomarkers possibly related to suicidal
ideation in U.S. Military Veterans (the
Baylor Study
). The FDA has granted
Fast Track designation for development of AV-101 as an add-on, or
adjunctive, treatment for MDD. We believe AV-101 has potential as a
novel treatment for multiple additional CNS indications, including
as a non-opioid treatment for chronic neuropathic pain, for which
the FDA has granted a second AV-101 Fast Track designation, as well
as a novel oral therapy for dyskinesia associated with levodopa
therapy for Parkinson’s disease and suicidal
ideation.
PH10 is
a novel, rapid-acting CNS neuroactive nasal spray for MDD.
Administered in microgram doses, PH10 activates nasal chemosensory
receptors that, in turn, engage neural circuits that lead to rapid
antidepressant effects without the psychological side effects,
systemic exposure or safety concerns often associated with current
oral antidepressants and ketamine-based therapies (intravenous
ketamine or esketamine nasal spray) (
KBT
). In an exploratory 30-patient
Phase 2a clinical study, PH10 was well-tolerated and, at microgram
doses, demonstrated rapid-onset antidepressant effects, as measured
by the Hamilton Depression Rating Scale (
HAM-D
), without psychological side
effects or safety concerns. Based on positive results from this
exploratory Phase 2a study, we are planning Phase 2b clinical
development of PH10 in 2020, initially as a new stand-alone
treatment for MDD. In a manner similar to the potential of AV-101,
with its exceptional safety profile during clinical development to
date, PH10 also has potential to change the current paradigm for
treatment of treatment-resistant depression (
TRD
) with KBT, which must be
administered in a clinical setting, by enabling those who respond
to KBT to transition to more convenient home-based use of PH10 to
maintain the initial therapeutic benefits of
KBT.
PH94B
is also a novel, rapid-acting CNS neuroactive nasal spray
administered in microgram doses. We are initially developing PH94B
for treatment of social anxiety disorder (
SAD
), which affects over 20 million
Americans and, according to the NIH, is the third most common
psychiatric condition after depression and substance abuse. A
person with SAD feels symptoms of anxiety or fear in certain social
situations, such as meeting new people, dating, being on a job
interview, answering a question in class, or having to talk to a
cashier in a store. Doing everyday things in front of people - such
as eating or drinking in front of others or using a public restroom
- also causes anxiety or fear. The person is afraid that he or she
will be humiliated, judged, and rejected. The fear that
people with SAD have in social situations is so strong that they
feel it is beyond their ability to control. As a result, it gets in
the way of going to work, attending school, or doing everyday
things. 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 have performance anxiety instead.
They feel physical symptoms of anxiety in performance situations,
such as giving a speech, playing a sports game, or dancing or
playing a musical instrument on stage. SAD usually starts
during youth in people who are extremely shy. Without treatment,
social anxiety disorder can last for many years or a lifetime and
prevent a person from reaching his or her full potential.
Unfortunately, SAD often predisposes to depression and substance
abuse. Only three drugs, all antidepressants, are approved by the
U.S Food and Drug Administration (
FDA
) specifically for treatment of
SAD. However, for treatment of both MDD and SAD, current oral
antidepressants (
ADs
) have
slow onset of effect (often several weeks to months) and
significant side effects that may make them inadequate treatment
alternatives for many individuals affected by MDD and
SAD.
PH94B
is fundamentally differentiated from all current treatments for
SAD. PH94B activates nasal chemosensory receptors that, in turn,
engage neural circuits that lead to rapid suppression of fear and
anxiety. In clinical studies to date, PH94B has not shown
psychological side effects, systemic exposure, sedation or other
safety concerns often associated with current antidepressants
approved by the FDA for treatment of SAD, as well as
benzodiazepines and beta blockers, which are not approved by the
FDA to treat SAD but are often prescribed for treatment of SAD
off-label. In a peer-reviewed, published double-blind,
placebo-controlled Phase 2 clinical trial, PH94B neuroactive nasal
spray was significantly more effective than placebo in reducing
public-speaking and social interaction anxiety on laboratory
challenges of individuals with SAD within 10 to 15 minutes of
self-administration. Based on its novel mechanism of
pharmacological action, rapid-onset of therapeutic effects and
exceptional safety and tolerability profile in Phase 2 clinical
trials to date, we are preparing to begin pivotal Phase 3
development of PH94B neuroactive nasal spray to become the first
FDA-approved on-demand treatment for SAD. Additional potential CNS
indications for PH94B include, general anxiety disorder
(
GAD
), peripartum anxiety,
preoperative anxiety, panic disorder and post-traumatic stress
disorder (
PTSD
).
In
addition to our current CNS product candidates, we have
pipeline-enabling programs through our wholly-owned subsidiary,
VistaStem Therapeutics (
VistaStem
). VistaStem is focused on
applying pluripotent stem cell (
hPSC
) technology to discover, rescue,
develop and commercialize proprietary new chemical entities
(
NCEs
) for CNS and other
diseases and regenerative medicine (
RM
) involving hPSC-derived blood,
cartilage, heart and liver cells. Our internal drug rescue programs
are designed to utilize
CardioSafe 3D
, our customized cardiac
bioassay system, to discover and develop small molecule NCEs for
our CNS pipeline or for out-licensing. To advance potential RM
applications of our cardiac stem cell technology, we have
sublicensed to BlueRock Therapeutics LP, a next generation cell
therapy and RM company recently acquired by Bayer AG (
BlueRock Therapeutics
), rights to
certain proprietary technologies relating to the production of
cardiac stem cells for the treatment of heart disease
(the
BlueRock
Agreement
). In a manner similar to the BlueRock
Agreement, we may pursue additional collaborations or licensing
transactions involving blood, cartilage, and/or liver cells derived
from hPSCs for cell-based therapy, cell repair therapy, RM and/or
tissue engineering.
Subsidiaries
As noted above, VistaStem, a California corporation, is our
wholly-owned subsidiary. Our Condensed Consolidated Financial
Statements in this Quarterly Report on Form 10-Q
(
Report
) also include the accounts of VistaStem and
VistaStem’s two wholly-owned inactive subsidiaries, Artemis
Neuroscience, Inc., a Maryland corporation, and VistaStem Canada,
Inc., a corporation organized under the laws of Ontario,
Canada.
Note 2. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial
Statements have been prepared in accordance with accounting
principles generally accepted in the United States
(
U.S.
GAAP
) for interim financial
information and with the instructions to Form 10-Q and
Rule 8-03 of Regulation S-X. Accordingly, they do not contain
all of the information and footnotes required for complete
consolidated financial statements. In the opinion of management,
the accompanying unaudited Condensed Consolidated Financial
Statements reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly our interim
financial information. The accompanying Condensed Consolidated
Balance Sheet at March 31, 2019 has been derived from our audited
consolidated financial statements at that date but does not include
all disclosures required by U.S. GAAP. The operating results
for the three and six months ended September 30, 2019 are not
necessarily indicative of the operating results to be expected for
our fiscal year ending March 31, 2020, or for any other future
interim or other period.
The accompanying unaudited Condensed Consolidated Financial
Statements and notes to the Condensed Consolidated Financial
Statements contained in this Report should be read in conjunction
with our audited Consolidated Financial Statements for our fiscal
year ended March 31, 2019 contained in our Annual Report on Form
10-K, as filed with the Securities and Exchange Commission
(
SEC
) on June 25, 2019.
The accompanying unaudited Condensed Consolidated Financial
Statements have been prepared assuming we will continue as a going
concern. As a clinical-stage biopharmaceutical company having not
yet developed commercial products or achieved sustainable revenues,
we have experienced recurring losses and negative cash flows from
operations resulting in a deficit of approximately $192.7 million
accumulated from inception (May 1998) through September 30, 2019.
We expect losses and negative cash flows from operations to
continue for the foreseeable future as we engage in further
development of AV-101, PH94B and PH10, execute our drug rescue
programs and pursue potential drug development and regenerative
medicine opportunities.
Since our inception in May 1998 through September 30, 2019, we have
financed our operations and technology acquisitions primarily
through the issuance and sale of our equity and debt securities for
cash proceeds of approximately $79.0 million, as well as from an
aggregate of approximately $17.7 million of government research
grant awards (excluding the fair market value of government
sponsored and funded clinical trials), strategic collaboration
payments, intellectual property sublicensing and other revenues.
Additionally, we have issued equity securities with an approximate
value at issuance of $38.1 million in noncash acquisitions of
product licenses and in settlements of certain liabilities,
including liabilities for professional services rendered to us or
as compensation for such services.
At September 30, 2019, we had cash and cash equivalents of
approximately $4.1 million. As disclosed in Note 11,
Subsequent Events
, since September 30,
2019, we have completed a self-placed private placement of units
consisting of unregistered shares of our common stock and warrants
to purchase unregistered shares of our common stock pursuant to
which we have received cash proceeds of $600,000
(the
Fall 2019 Private
Placement
). Nevertheless, we
believe that our cash position at September 30, 2019, including the
proceeds from the Fall 2019 Private Placement, considered with our
recurring and anticipated losses, negative cash flows from
operations and stockholders’ deficit make it probable, in the
absence of additional financing, that we will not have sufficient
resources to fund our planned operations for the twelve months
following the issuance of these financial statements, during which
time we plan to finalize the ELEVATE Study, prepare for and
potentially launch Phase 3 clinical trials of AV-101 and/or PH94B,
prepare for additional Phase 2 clinical studies and certain
nonclinical studies involving AV-101, PH10 and PH94B and prepare
for a Phase 2b clinical trial of PH10, and raises substantial doubt
that we can continue as a going concern. When necessary and
advantageous, we plan to raise additional capital, primarily
through the sale of our equity securities in one or more private
placements to accredited investors or in public offerings. Subject
to certain restrictions, our Registration Statement on Form S-3
(Registration No. 333-234025) (the
S-3 Registration
Statement
), which became
effective on October 7, 2019, is available for future sales of our
equity securities in one or more public offerings from time to
time. While we may make additional sales of our equity securities
under the S-3 Registration Statement, we do not have an obligation
to do so. As we have been in the past, we expect that, when and as
necessary, we will be successful in raising additional capital from
the sale of our equity securities either in one or more public
offerings or in one or more private placement transactions with
individual accredited investors or
institutions.
In addition to the potential sale of our equity securities, we may
also seek to enter research, development and/or commercialization
collaborations that could generate revenue or provide funding,
including non-dilutive funding, for development of AV-101, PH94B,
PH10 and/or additional product candidates. We may also seek
additional government grant awards or agreements similar to our
relationships with Baylor and the VA in connection with the Baylor
Study. Such strategic collaborations may provide non-dilutive
resources to advance our strategic initiatives while reducing a
portion of our future cash outlays and working capital
requirements. We may also pursue intellectual property arrangements
similar to the BlueRock Agreement with other parties. Although we
may seek additional collaborations that could generate revenue
and/or provide non-dilutive funding for development of AV-101,
PH94B, PH10 or other product candidates, as well as new government
grant awards and/or agreements, no assurance can be provided that
any such collaborations, awards or agreements will occur in the
future.
Our future working capital requirements will depend on many
factors, including, without limitation, the scope and nature of
opportunities related to our success and the success of certain
other companies in clinical trials, including our development and
commercialization of our current product candidates and various
applications of our stem cell technology platform, the availability
of, and our ability to obtain, government grant awards and
agreements, and our ability to enter into collaborations on terms
acceptable to us. To further advance the clinical development of
AV-101, PH94B, PH10 and, to a lesser extent, our stem cell
technology platform, as well as support our operating activities,
we plan to continue to carefully manage our routine operating
costs, including our employee headcount and related expenses, as
well as costs relating to regulatory consulting, contract research
and development, investor relations and corporate development,
legal, acquisition and protection of intellectual property, public
company compliance and other professional services and operating
costs.
Notwithstanding the foregoing, there can be no assurance that
future financings or government or other strategic collaborations
will be available to us in sufficient amounts, in a timely manner,
or on terms acceptable to us, if at all. If we are unable to obtain
substantial additional financing on a timely basis when needed in
2019 and beyond, our business, financial condition, and results of
operations may be harmed, the price of our stock may decline, we
may be required to reduce, defer, or discontinue certain of our
research and development activities and we may not be able to
continue as a going concern. As noted above, these
Condensed Consolidated Financial Statements do not include any
adjustments that might result from the negative outcome of this
uncertainty.
Note 3. Summary of Significant Accounting
Policies
Use of Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates. Significant estimates
include those relating to share-based compensation, right-of-use
assets and lease liabilities and assumptions that have been used
historically to value warrants and warrant modifications. With the
exception of the BlueRock Agreement pursuant to which we recorded
sublicense revenue in the third quarter of our fiscal year ended
March 31, 2017, we do not currently have, nor have we had during
the periods covered by this Report, any arrangements requiring the
recognition of revenue.
Research and Development Expenses
Research and development expenses are composed of both internal and
external costs. Internal costs include salaries and
employment-related expenses, including stock-based compensation
expense, of scientific personnel and direct project
costs. External research and development expenses
consist primarily of costs associated with clinical and
non-clinical development of AV-101, PH94B, PH10, and stem cell
research and development costs, and costs related to the
application and prosecution of patents related to those product
candidates and, to a lesser extent, our stem cell technology
platform. All such costs are charged to expense as incurred. We
also record accruals for estimated ongoing clinical trial costs.
Clinical trial costs represent costs incurred by contract research
organizations (
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 and used in determining the clinical trial accrual in any
reporting period. Actual results could differ from those estimates
under different assumptions. Revisions are charged to research and
development expense in the period in which the facts that give rise
to the revision become known. Costs incurred in obtaining product
or technology licenses are charged immediately to research and
development expense if the product or technology licensed has not
achieved regulatory approval or reached technical feasibility and
has no alternative future uses. In September and October 2018, we
acquired exclusive worldwide licenses to develop and commercialize
PH94B and PH10, respectively, by issuing an aggregate of 2,556,361
unregistered shares of our common stock having an issuance-date
fair market value of $4,250,000. Since, at the date of each
acquisition, neither product candidate had achieved regulatory
approval and each will require significant additional development
and expense, we expensed the costs related to acquiring the
licenses and the option during our fiscal year ended March 31,
2019.
Stock-Based Compensation
We recognize compensation cost for all stock-based awards to
employees and non-employee consultants based on the grant date fair
value of the award. We record non-cash, stock-based
compensation expense over the period during which the employee or
other grantee is required to perform services in exchange for the
award, which generally represents the scheduled vesting
period. We have not granted restricted stock awards to
employees nor do we have any awards with market or performance
conditions. Non-cash expense attributable to compensatory
grants of stock to non-employees is determined by the quoted market
price of the stock on the date of grant and is either recognized as
fully-earned at the time of the grant or amortized ratably over the
term of the related service agreement, depending on the terms of
the specific agreement.
The table below summarizes stock-based compensation expense
included in the accompanying Condensed Consolidated Statements of
Operations and Comprehensive Loss for the three and six months
ended September 30, 2019 and 2018.
|
|
Three Months Ended September 30,
|
Six Months Ended September 30,
|
||
|
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
|
|
Research
and development expense
|
$
167,500
|
$
450,600
|
$
558,100
|
$
680,700
|
|
General
and administrative expense
|
226,000
|
721,800
|
898,400
|
1,104,300
|
|
Total
stock-based compensation expense
|
$
393,500
|
$
1,172,400
|
$
1,456,500
|
$
1,785,000
|
In May 2019, the Compensation Committee of our Board of Directors
(the
Board
) approved the grant of options from our 2016
Amended and Restated Stock Incentive Plan (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. 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. We valued the options granted in May 2019
using the Black-Scholes Option Pricing Model and the following
weighted average assumptions:
|
Assumption:
|
May
2019
|
|
Market
price per share at grant date
|
$
0.80
|
|
Exercise
price per share
|
$
1.00
|
|
Risk-free
interest rate
|
2.12
%
|
|
Expected
term in years
|
5.53
|
|
Volatility
|
85.90
%
|
|
Dividend
rate
|
0.0
%
|
|
Shares
|
1,220,000
|
|
|
|
|
Fair Value per share
|
$
0.54
|
Additionally, in May 2019, the Compensation Committee approved,
subject to subsequent stockholder approval at our 2019 Annual
Meeting of Stockholders (
Annual
Meeting
) held in September
2019, the 2019 Omnibus Equity Incentive Plan (the
2019
Plan
) and designated 7.5
million shares of our authorized common stock to be reserved
thereunder. Further, in May 2019, the Compensation Committee
granted options pursuant to 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 grant was contingent upon
the approval of the 2019 Plan by our stockholders. Our stockholders
approved the 2019 Plan at our Annual Meeting and ratified the
contingent grant. The option vested 25% upon approval of the 2019
Plan and the remaining shares vest ratably over three years. We
valued the option using the Black-Scholes Option Pricing Model and
the following assumptions:
|
Assumption:
|
September
2019
|
|
Market
price per share at grant date
|
$
0.84
|
|
Exercise
price per share
|
$
1.00
|
|
Risk-free
interest rate
|
1.45
%
|
|
Expected
term in years
|
5.58
|
|
Volatility
|
86.04
%
|
|
Dividend
rate
|
0.0
%
|
|
Shares
|
170,000
|
|
|
|
|
Fair Value per share
|
$
0.56
|
Upon approval of the 2019 Plan by our stockholders, no further
option or other equity awards were permitted from our 2016 Plan and
all remaining authorized shares of our common stock available for
issuance under the 2016 Plan, 1,388,412 shares, became available
for issuance under the 2019 Plan.
At September 30, 2019, there were stock options outstanding under
our 2016 Plan and 2019 Plan to purchase 8,014,838 shares of our
common stock at a weighted average exercise price of $1.40 per
share. At that date, there were also 8,718,412 shares of our common
stock available for future issuance under the 2019 Plan. See Note
11,
Subsequent Events
, for
disclosure of additional option grants made in October
2019.
Leases, Right-of-Use Assets and Lease Liabilities
On
April 1, 2019, we adopted
Financial
Accounting Standards Board (
FASB
) Accounting Standards Update (
ASU
)
No. 2016-02,
Leases
, which replaced the existing guidance in
Accounting Standards Codification (
ASC
) 840, “Leases”, and its
subsequent amendments including ASU No.
2018-11,
Leases (Topic 842):
Targeted Improvements
(
ASC
842
)
using the modified
transition method.
We
determine whether an arrangement is an operating or financing lease
at contract inception. Operating lease assets represent our right
to use an underlying asset for the lease term and operating lease
liabilities represent our obligation to make lease payments arising
from the lease. Operating lease assets and liabilities are
recognized at the commencement date of the lease based upon the
present value of lease payments over the lease term. When
determining the lease term, we include options to extend or
terminate the lease when it is reasonably certain that we will
exercise that option. In determining the present value of the lease
payments, we use the interest rate implicit in the lease when it is
readily determinable and we use our estimated incremental borrowing
rate based upon information available at the commencement date when
the implicit rate is not readily determinable.
The
lease payments used to determine our operating lease assets include
lease incentives and stated rent increases and may include
escalation or other clauses linked to rates of inflation or other
factors when determinable and are recognized in our operating lease
assets in our condensed consolidated balance sheets.
Our
operating leases are reflected in right of use asset –
operating leases, other current liabilities and non-current
operating lease liability in our condensed consolidated balance
sheets. Lease expense for minimum lease payments is recognized on a
straight-line basis over the lease term. Short-term leases, defined
as leases that have a lease term of 12 months or less at the
commencement date, are excluded from this treatment and are
recognized on a straight-line basis over the term of the
lease.
Our
accounting for financing leases, previously referred to as
“capital leases” under prior guidance, remained
substantially unchanged with our adoption of ASC 842. Financing
leases are included in property and equipment, net and as current
and non-current financing lease liabilities in our condensed
consolidated balance sheets. Refer to “Recent Accounting
Pronouncements” below and Note 10,
Commitments and Contingencies,
for
additional information regarding our adoption of ASC 842 and its
impact on our condensed consolidated financial
statements.
Comprehensive Loss
We have no components of other comprehensive loss other than net
loss, and accordingly our comprehensive loss is equivalent to our
net loss for the periods presented.
Loss per Common Share
Basic net loss attributable to common stockholders per share of
common stock excludes the effect of dilution and is computed by
dividing net loss increased by
the accrual of dividends on
outstanding shares of our Series B 10% Convertible Preferred Stock
(
Series B Preferred
),
by the weighted-average number of
shares of common stock outstanding for the period. Diluted net loss
attributable to common stockholders per share of common stock
reflects the potential dilution that could occur if securities or
other contracts to issue shares of common stock were exercised or
converted into shares of common stock. In calculating diluted net
loss attributable to common stockholders per share, we have
generally not increased the denominator to include the number of
potentially dilutive common shares assumed to be outstanding during
the period using the treasury stock method because the result is
antidilutive.
As a result of our net loss for all periods presented, potentially
dilutive securities were excluded from the computation of diluted
net loss per share, as their effect would be antidilutive.
Potentially dilutive securities excluded in determining diluted net
loss attributable to common stockholders per common share are as
follows:
|
|
As of September 30,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Series A Preferred stock issued and
outstanding
(1)
|
750,000
|
750,000
|
|
Series B Preferred stock issued and
outstanding
(2)
|
1,160,240
|
1,160,240
|
|
Series C Preferred stock issued and
outstanding
(3)
|
2,318,012
|
2,318,012
|
|
Outstanding
options under the Company's Amended and Restated 2016 (formerly
2008) Stock Incentive Plan and 2019 Omnibus Equity Incentive
Plan
|
8,014,838
|
6,160,338
|
|
Outstanding
warrants to purchase common stock
|
21,242,954
|
20,709,516
|
|
|
|
|
|
Total
|
33,486,044
|
31,098,106
|
|
____________
|
|
|
|
|
|
(1)
Assumes exchange under the
terms of the October 11, 2012 Note Exchange and Purchase Agreement,
as amended.
|
||||
|
(2)
Assumes exchange under the
terms of the Certificate of Designation of the Relative Rights and
Preferences of the Series B 10% Convertible Preferred Stock,
effective May 5, 2015; excludes common shares issuable in payment
of dividends on Series B Preferred upon
conversion.
|
||||
|
(3)
Assumes exchange under the
terms of the Certificate of Designation of the Relative Rights and
Preferences of the Series C Convertible Preferred Stock, effective
January 25, 2016.
|
||||
Fair Value Measurements
We do not use derivative instruments for hedging of market risks or
for trading or speculative purposes. We carried no assets or
liabilities that are measured on a recurring basis at fair value at
September 30, 2019 or March 31, 2019.
Recent Accounting Pronouncements
Except
as described below, there have been no recent accounting
pronouncements or changes in accounting pronouncements during the
six months ended September 30, 2019, as compared to the recent
accounting pronouncements described in our Form 10-K for our fiscal
year ended March 31, 2019, that are of significance or potential
significance to us.
In February 2016, the FASB issued ASU
No. 2016-02,
Leases
, which replaced the existing guidance in ASC 840,
“Leases”, and in July 2018, the FASB issued ASU No.
2018-11,
Leases (Topic 842):
Targeted Improvements
(together,
ASC 842
). The new leasing standards
set out the
principles for the recognition, measurement, presentation and
disclosure of leases for both parties to a contract (i.e. lessees
and lessors). The new standards require lessees to apply a dual
approach, classifying leases as either finance or operating leases
based on the principle of whether or not the lease is effectively a
financed purchase by the lessee. This classification will determine
whether lease expense is recognized based on an effective interest
method or on a straight-line basis over the term of the lease,
respectively. A lessee is also required to record a right-of-use
asset and a lease liability for all leases with a term of greater
than 12 months regardless of their classification. Leases with a
term of 12 months or less will be accounted for similar to the
prior guidance for operating leases. We
adopted the standards on the required effective
date of April 1, 2019 and did not restate lease expense or
lease-related assets or liabilities reported in prior comparative
periods. Presentation of our financing lease for office
equipment in the consolidated balance sheet is generally consistent
with capitalized lease presentation under the prior lease
accounting guidance. Presentation of leases within the consolidated
statements of operations and consolidated statements of cash flows
is generally consistent with the prior lease accounting guidance.
We elected the package of practical expedients permitted under the
transition guidance and, accordingly, the adoption of ASC 842 did
not change the prior classification of any of our leases. We
elected not to record a right-of-use asset or a lease liability on
the balance sheet for leases with a term of 12 months or less and
will recognize the associated lease payments in the consolidated
statements of operations over the lease term. On the April 1,
2019 adoption date, we recognized approximately $4.3 million as
total lease liabilities and $3.9 million as total right-of-use
assets in our Condensed Consolidated Balance Sheet and derecognized
a deferred rent liability of approximately $0.4 million
attributable to the operating lease of our primary office and
laboratory facilities recorded in accordance with prior
guidance.
Note 4. Prepaid Expenses and Other Current
Assets
Prepaid expenses and other current assets are composed of the
following at September 30, 2019 and March 31, 2019:
|
|
September 30,
|
March 31,
|
|
|
2019
|
2019
|
|
|
|
|
|
AV-101,
PH94B and PH10 materials and contract services
|
$
357,900
|
$
5,900
|
|
Fair
value of securities issued for professional services
|
-
|
105,900
|
|
Insurance
|
206,000
|
96,300
|
|
Public
offering filing fees and expenses
|
30,500
|
22,300
|
|
All
other
|
10,100
|
20,500
|
|
|
$
604,500
|
$
250,900
|
The fair value of securities issued for professional services
reflects the unamortized portion of the fair value of securities we
have issued to certain professional service providers as full or
partial compensation for services. The fair value of the securities
issued is amortized ratably over the term of the related service
agreement.
Note 5. Property and Equipment
Property and equipment is composed of the following at September
30, 2019 and March 31, 2019:
|
|
September 30,
|
March 31,
|
|
|
2019
|
2019
|
|
|
|
|
|
Laboratory
equipment
|
$
892,500
|
$
892,500
|
|
Tenant
improvements
|
214,400
|
214,400
|
|
Computers
and network equipment
|
54,600
|
54,600
|
|
Office
furniture and equipment
|
84,600
|
84,600
|
|
|
1,246,100
|
1,246,100
|
|
Accumulated
depreciation and amortization
|
(985,500
)
|
(933,400
)
|
|
Property
and equipment, net
|
$
260,600
|
$
312,700
|
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 September 30, 2019 and March 31, 2019 are as
follows:
|
|
September 30,
|
March 31,
|
|
|
2019
|
2019
|
|
|
|
|
|
Office
equipment subject to financing lease
|
$
14,700
|
$
14,700
|
|
Accumulated
depreciation
|
(8,000
)
|
(6,500
)
|
|
Net
book value of office equipment subject to financing
lease
|
$
6,700
|
$
8,200
|
Note 6. Accrued Expenses
Accrued expenses are composed of the following at September 30,
2019 and March 31, 2019:
|
|
September 30,
|
March 31,
|
|
|
2019
|
2019
|
|
|
|
|
|
Accrued
expenses for AV-101, PH94B, and PH10
|
|
|
|
clinical
trial, development and related expenses
|
$
2,080,700
|
$
1,067,600
|
|
Accrued
compensation
|
-
|
439,200
|
|
Accrued
professional services
|
127,600
|
172,100
|
|
All
other
|
7,200
|
6,700
|
|
|
$
2,215,500
|
$
1,685,600
|
Note 7. Notes Payable
The following table summarizes our unsecured promissory notes at
September 30, 2019 and March 31, 2019:
|
|
September 30, 2019
|
March
31, 2019
|
||||
|
|
Principal
|
Accrued
|
|
Principal
|
Accrued
|
|
|
|
Balance
|
Interest
|
Total
|
Balance
|
Interest
|
Total
|
|
|
|
|
|
|
|
|
|
7.75%
and 7.15% Notes payable
|
|
|
|
|
|
|
|
to
insurance premium financing company (current)
|
$
159,300
|
$
-
|
$
159,300
|
$
57,300 $
|
$
-
|
$
57,300
|
In May 2019, we executed a 7.15% promissory note in the principal
amount of $230,200 in connection with certain insurance policy
premiums. The note is payable in monthly installments of $23,800,
including principal and interest, through March 2020, and had an
outstanding principal balance of $139,800 at September 30, 2019. In
February 2019, we executed a 7.75% promissory note in the principal
amount of $63,500 in connection with other insurance policy
premiums. That note is payable in monthly installments of $6,600
including principal and interest, through December 2019 and had an
outstanding principal balance of $19,500 at September 30,
2019.
Note 8. Capital Stock
During the six months ended September 30, 2019, we did not engage
in any capital-raising transactions, nor did we grant any equity
securities as full or partial compensation to consultants, other
than stock options as described in Stock-Based Compensation in Note
3,
Summary
of Significant Accounting Policies
.
Warrants Outstanding
During the quarter ended June 30, 2019, warrants issued in private
placement transactions during calendar 2018 to purchase an
aggregate of 805,800 shares of our common stock at exercise prices
between $1.50 per share and $1.75 per share became
fully-exercisable in accordance with their terms. Accordingly, all
warrants outstanding at September 30, 2019 are now
fully-exercisable at a weighted average exercise price of $2.43 per
share as follows:
|
Exercise
|
Weighted
|
|
Warrants Outstanding
|
|
Price
|
Average
|
Expiration
|
and Exercisable at
|
|
per Share
|
per Share
|
Date
|
September 30, 2019
|
|
|
|
|
|
|
$
1.50
|
$
1.50
|
11/30/2021
to 12/13/2022
|
14,335,200
|
|
$
1.59 - $1.80
|
$
1.67
|
2/28/2022
to 10/10/2022
|
625,619
|
|
$
1.82
|
$
1.82
|
3/7/2023
|
1,388,931
|
|
$
2.00 - $3.51
|
$
2.14
|
4/30/2021
to 10/19/2022
|
696,693
|
|
$
5.30
|
$
5.30
|
5/16/2021
|
2,705,883
|
|
$
6.00 - $10.00
|
$
7.15
|
10/11/2019
to 3/3/2023
|
1,490,628
|
|
|
$
2.43
|
|
21,242,954
|
Of the warrants outstanding at September 30, 2019, 2,705,883 shares
of common stock underlying the warrants exercisable at $5.30 per
share issued in our May 2016 public offering, 1,388,931 shares of
common stock underlying the warrants exercisable at $1.82 per share
issued in our September 2017 public offering and 9,596,200 shares
of common stock underlying the warrants exercisable at $1.50 per
share issued in our December 2017 public offering are registered
for resale by the warrant holders. The common shares issuable upon
exercise of our remaining outstanding warrants are unregistered. At
September 30, 2019, none of our outstanding warrants are subject to
down round anti-dilution protection features and all of the
outstanding warrants are exercisable by the holders only by payment
in cash of the stated exercise price per share.
Note 9. Related Party Transactions
Cato Holding Company (
CHC
), doing business as Cato BioVentures
(
CBV
), is the parent of Cato Research Ltd.
(
CRL
). CRL is a contract research, development and
regulatory services organization (
CRO
) that we have engaged for a wide range of
material aspects related to the nonclinical and clinical
development, manufacturing and regulatory affairs associated with
our efforts to develop and commercialize AV-101 for MDD, including
our ELEVATE Study and other potential CNS indications, as well as
PH94B, PH10, and other potential product candidates. At September
30, 2019, CBV held approximately 2% of our outstanding common
stock.
In July
2017, we entered into a Master Services Agreement (
MSA
) with CRL, which replaced a
substantially similar May 2007 master services agreement, pursuant
to which CRL may assist us in the evaluation, development,
commercialization and marketing of our potential product
candidates, and provide regulatory and strategic consulting
services as requested from time to time. Specific projects or
services are and will be delineated in individual work orders
negotiated from time-to-time under the MSA.
Under the terms of work orders issued pursuant to
the July 2017 MSA and our prior May 2007 master services agreement,
we incurred expenses of $1,610,900 and $752,200 during the quarters
ended September 30, 2019 and 2018, respectively, and $3,016,000 and
$1,603,000 for the six months ended September 30, 2019 and 2018,
respectively. At September 30, 2019 and March 31, 2019, we had
recorded accounts payable and accrued expenses related to CRL
aggregating $1,646,800 and $657,800, respectively. We anticipate
periodic expenses for CRO services from CRL related to nonclinical
and clinical development of, and regulatory affairs related to,
AV-101, PH94B, PH10 and other potential product candidates will
increase in future periods.
During our fiscal year ended March 31, 2019,
we issued an
aggregate of 2,556,361 shares of our unregistered common stock
having an issue-date fair market value of $4,250,000 to Pherin
Pharmaceuticals, Inc. (
Pherin
) to acquire exclusive worldwide
licenses to develop and commercialize PH94B and PH10. We recorded
the acquisition of the licenses as research and development expense
during our fiscal year ended March 31, 2019. During the quarters
ended September 30, 2019 and 2018, we recorded $30,000 and $10,000,
respectively, and during the six months ended September 30, 3019
and 2018, we recorded $60,000 and $10,000 respectively,
representing monthly support payments to Pherin under the terms of
the PH94B license agreement. We recorded no amounts payable to
Pherin at September 30, 2019 or March 31, 2019. At September 30,
2019, Pherin held approximately 4% of our outstanding common
stock.
During
the six months ended September 30, 2019, we engaged the consulting
firm headed by one of the independent members of our Board to
provide various market research studies for certain of our product
pipeline candidates and recorded research and development expense
of $75,100 for the quarter ended September 30, 2019 and $102,800
for the six months ended September 30, 2019 related to such
studies. We incurred no such expenses for the three and six months
ended September 30, 2018. At September 30, 2019, we recorded
$45,000 of accrued expenses related to these studies.
Note 10. Commitments and Contingencies
Operating Leases
We lease our headquarters office and laboratory space in South San
Francisco, California under the terms of a lease that expires on
July 31, 2022 and that provides an option to renew for an
additional five years at then-current market rates. Consistent with
the guidance in ASC 842, effective beginning April 1, 2019, we have
recorded this lease in our Condensed Consolidated Balance Sheet as
an operating lease. For the purpose of determining the right-of-use
asset and associated lease liability, we determined that the
renewal of this lease is reasonably probable. The lease of our
South San Francisco facilities does not include any restrictions or
covenants requiring special treatment under ASC 842.
The following table summarizes the presentation of the operating
lease in our Condensed Consolidated Balance Sheet at September 30,
2019:
|
|
As of September
30, 2019
|
|
Assets
|
|
|
Right
of use asset – operating lease
|
$
3,750,200
|
|
|
|
|
Liabilities
|
|
|
Current
operating lease obligation
|
$
289,600
|
|
Non-current
operating lease obligation
|
3,879,400
|
|
Total
operating lease liability
|
$
4,169,000
|
The following table summarizes the effect of operating lease costs
in the Company’s condensed consolidated statements of
operations:
|
|
For the Three Months
Ended
|
For the Six Months
Ended
|
|
|
September
30, 2019
|
September
30, 2019
|
|
Operating
lease cost
|
$
203,100
|
$
411,900
|
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,
|
|
|
2020
(remaining six months)
|
$
315,500
|
|
2021
|
645,800
|
|
2022
|
668,400
|
|
2023
|
726,000
|
|
2024
|
766,000
|
|
Thereafter
|
2,720,400
|
|
Total
lease expense
|
5,842,100
|
|
Less
imputed interest
|
(1,673,100
)
|
|
Present
value of operating lease liabilities
|
$
4,169,000
|
Under the prior lease guidance, future minimum lease payments,
under the non-cancellable portion (excluding the five-year
extension assumed under ASC 842) of the South San Francisco
operating lease were as follows at March 31, 2019:
|
Fiscal Years Ending March 31,
|
|
|
2020
|
$
623,900
|
|
2021
|
645,800
|
|
2022
|
668,400
|
|
2023
|
225,300
|
|
2024
|
-
|
|
Thereafter
|
-
|
|
|
$
2,163,400
|
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 September 30, 2019
|
|
Assumed
remaining lease term in years
|
7.84
|
|
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 the
Company’s operating leases included in cash flows used by
operating activities in the condensed consolidated statements of
cash flows is as follows:
|
|
For the Six Months
Ended
|
|
|
September 30, 2019
|
|
Cash paid for amounts
included in the measurement of lease
liabilities
|
$
374,200
|
During the six months ended September 30, 2019, other than the
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 $3,500 and
$6,900 for the three and six months ended September 30, 2019,
respectively, attributable to this lease.
Note 11. Subsequent Events
We have
evaluated subsequent events through November 6, 2019 and have
identified the following matters requiring disclosure:
Grant of Options from the 2019 Plan
During October 2019, we granted options from our 2019 Plan to the
independent members of our Board, our officers and employees and
certain consultants to purchase an aggregate of 1,575,000 shares of
our common stock at an exercise price of $1.41 per share, the
quoted closing market price of our common stock on the Nasdaq
Capital Market on the grant date. The options were vested 25% at
grant with the remaining options vesting ratably over the following
24 months.
Common Stock and Warrants Issued in Fall 2019 Private
Placement
Between
October 30, 2019 and November 6, 2019, in a self-placed private
placement and pursuant to subscription agreements from accredited
investors, we sold to such investors units, at a purchase price of
$1.00 per unit, consisting of an aggregate of 600,000 unregistered
shares of our common stock and warrants, exercisable through
November 1, 2023, to purchase 300,000 unregistered shares of our
common stock at an exercise price of $2.00 per share. The
purchasers of the units have no registration rights with respect to
the shares of common stock, warrants or the shares of common stock
issuable upon exercise of the warrants comprising the units sold.
The warrants are not exercisable prior to six months and one day
following issuance.
We received aggregate cash proceeds of $600,000 from the sale of
the units.
|
Item 2.
|
|
MANAGE
M
ENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (Report) includes
forward-looking statements. All statements contained in this Report
other than statements of historical fact, including statements
regarding our future results of operations and financial position,
our business strategy and plans, and our objectives for future
operations, are forward-looking statements. The words
“believe,” “may,” “estimate,”
“continue,” “anticipate,”
“intend,” “expect” and similar expressions
are intended to identify forward-looking statements. We have based
these forward-looking statements largely on our current
expectations and projections about future events and trends that we
believe may affect our financial condition, results of operations,
business strategy, short-term and long-term business operations and
objectives and financial needs. These forward-looking statements
are subject to a number of risks, uncertainties and assumptions.
Our business is subject to significant risks including, but not
limited to, our ability to obtain substantial additional financing,
the results of our research and development efforts, the results of
nonclinical and clinical testing, the effect of regulation by the
U.S. Food and Drug Administration (FDA) and other agencies, the
impact of competitive products, product development,
commercialization and technological difficulties, the effect of our
accounting policies, and other risks as detailed in the section
entitled “Risk Factors” in this
Report. Further, even if our product candidates appear
promising at various stages of development, our share price may
decrease such that we are unable to raise additional capital
without significant dilution or other terms that may be
unacceptable to our management, Board of Directors (Board) and
stockholders.
Moreover, we operate in a very competitive and rapidly changing
environment. New risks emerge from time to time. It is not possible
for our management or Board to predict all risks, nor can we assess
the impact of all factors on our business or the extent to which
any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking
statements we may make. In light of these risks, uncertainties and
assumptions, the future events and trends discussed in this Report
may not occur and actual results could differ materially and
adversely from those anticipated or implied in the forward-looking
statements.
You should not rely upon forward-looking statements as predictions
of future events. The events and circumstances reflected in the
forward-looking statements may not be achieved or occur. Although
we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. We are under no
duty to update any of these forward-looking statements after the
date of this Report or to conform these statements to actual
results or revised expectations. If we do update one or more
forward-looking statements, no inference should be drawn that we
will make additional updates with respect to those or other
forward-looking statements.
Business Overview
VistaGen Therapeutics. Inc., a Nevada corporation (which may be
referred to as
VistaGen
, the
Company
,
we
,
our
, or
us
), is a clinical-stage biopharmaceutical company
committed to developing differentiated new generation medications
for central nervous system (
CNS
) diseases and disorders with high unmet need. Our
product candidate portfolio includes three differentiated
clinical-stage candidates, AV-101, PH10 and PH94B, which we are
developing for multiple CNS indications. We aim to become a
fully-integrated biopharmaceutical company that develops and
commercializes innovative CNS therapies for large and growing
mental health and neurology markets where current treatments are
inadequate to meet the needs of millions of patients and caregivers
worldwide.
AV-101 (4-Chlorokynurenine or 4-Cl-KYN) belongs to a new generation
of investigational medicines in neuropsychiatry and neurology known
as NMDA (N-methyl-D-aspartate) glutamate receptor modulators. The
NMDA receptor is a pivotal receptor in the brain and abnormal NMDA
function is associated with multiple CNS diseases and disorders,
including major depressive disorder (
MDD
), chronic neuropathic pain, epilepsy,
levodopa-induced dyskinesia and many others. AV-101 is an oral
prodrug of 7-Cl-KYNA, an NMDA receptor antagonist which binds at
the glycine site of the NMDA receptor. We are developing AV-101
initially for the treatment of MDD, a serious
neurobiologically-based mood disorder which is a leading cause of
disability globally, affecting approximately 17 million adults in
the United States and nearly 300 million people worldwide according
to the U.S. National Institutes of Health (
NIH
). AV-101 is currently in Phase 2 development in
the U.S. as an adjunctive, or add-on, treatment (together with
current FDA-approved oral antidepressants (SSRIs and SNRIs))
through the ELEVATE study, our U.S. multi-center, randomized,
double-blind, placebo-controlled Phase 2 clinical study to evaluate
the efficacy and safety of adjunctive use of AV-101 in adult MDD
patients who have an inadequate response to standard FDA-approved
oral antidepressant therapy (the
ELEVATE
Study
). In addition to the
ELEVATE Study, we are collaborating with Baylor College of Medicine
(
Baylor
) and the U.S. Department of Veterans Affairs
(
VA
) on a small Phase 1b clinical trial of AV-101 in
healthy volunteer U.S. Military Veterans from Operation Enduring
Freedom, Operation Iraqi Freedom or Operation New Dawn
(the
Baylor
Study
). The FDA has granted
Fast Track designation for development of AV-101 as an adjunctive,
treatment for MDD. We believe AV-101 has potential as a novel
treatment for multiple additional CNS indications, including as a
non-opioid treatment for chronic neuropathic pain, for which the
FDA has granted a second AV-101 Fast Track designation, as well as
a novel oral therapy for dyskinesia associated with levodopa
therapy for Parkinson’s disease and suicidal
ideation.
PH10 is
a novel, rapid-acting CNS neuroactive nasal spray for MDD.
Administered in microgram doses, PH10 activates nasal chemosensory
receptors that, in turn, engage neural circuits that lead to rapid
antidepressant effects without the psychological side effects,
systemic exposure or safety concerns often associated with current
oral antidepressants and ketamine-based therapies (intravenous
ketamine or esketamine nasal spray) (
KBT
). In an exploratory 30-patient
Phase 2a clinical study, PH10 was well-tolerated and, at microgram
doses, demonstrated rapid-onset and sustained antidepressant
effects, as measured by the Hamilton Depression Rating Scale
(
HAM-D
), without
psychological side effects or safety concerns often associated with
KBT. Based on positive results from this exploratory Phase 2a
study, we are preparing for Phase 2b clinical development of PH10
in late-2020, initially as a new stand-alone treatment for MDD. In
a manner similar to the potential of AV-101, with its exceptional
safety profile during clinical development to date, PH10 also has
potential to change the current paradigm for treatment of
treatment-resistant depression (
TRD
) with KBT, which must be
administered in a clinical setting, by enabling those who respond
to such therapy to transition to more convenient home-based
administration of PH10 to maintain the therapeutic benefits of
KBT.
PH94B
is also a first-in-class, rapid-acting CNS neuroactive nasal spray
administered in microgram doses. We are initially developing PH94B
initially for treatment of social anxiety disorder (
SAD
), which affects over 20 million
Americans and, according to the NIH, is the third most common
psychiatric condition after depression and substance abuse. A
person with SAD feels symptoms of anxiety or fear in certain social
situations, such as meeting new people, dating, being on a job
interview, answering a question in class, or having to talk to a
cashier in a store. Doing everyday things in front of people - such
as eating or drinking in front of others or using a public restroom
- also causes anxiety or fear. The person is afraid that he or she
will be humiliated, judged, and rejected. The fear that
people with SAD have in social situations is so strong that they
feel it is beyond their ability to control. As a result, it gets in
the way of going to work, attending school, or doing everyday
things. 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 have performance anxiety instead.
They feel physical symptoms of anxiety in performance situations,
such as giving a speech, playing a sports game, or dancing or
playing a musical instrument on stage. SAD usually starts
during youth in people who are extremely shy. Without treatment,
social anxiety disorder can last for many years or a lifetime and
prevent a person from reaching his or her full
potential.
PH94B
is fundamentally differentiated from all current treatments for
SAD. PH94B activates nasal chemosensory receptors that, in turn,
engage neural circuits that lead to rapid suppression of fear and
anxiety. In clinical studies to date, PH94B has not shown
psychological side effects, systemic exposure, sedation or other
safety concerns often associated with current antidepressants
approved by the FDA for treatment of SAD, as well as
benzodiazepines and beta blockers, which are not approved by the
FDA to treat SAD but are often prescribed for treatment of SAD
off-label. In a peer-reviewed, published double-blind,
placebo-controlled Phase 2 clinical trial, PH94B neuroactive nasal
spray was significantly more effective than placebo in reducing
social interaction and public speaking anxiety on laboratory
challenges of individuals with SAD within 10 to 15 minutes of
self-administration. Based on its novel mechanism of
pharmacological action, rapid-onset of therapeutic effects and
exceptional safety and tolerability profile in Phase 2 clinical
trials to date, we are preparing to begin pivotal Phase 3
development of PH94B neuroactive nasal spray to become the first
FDA-approved as-needed, on-demand treatment for SAD. Additional
potential CNS indications for PH94B include, general anxiety
disorder (
GAD
), peripartum
anxiety, preoperative anxiety, panic disorder and post-traumatic
stress disorder (
PTSD
).
In
addition to our current CNS product candidates, we have
pipeline-enabling programs through our wholly-owned subsidiary,
VistaStem Therapeutics (
VistaStem
). VistaStem is focused on
applying pluripotent stem cell (
hPSC
) technology to discover, rescue,
develop and commercialize proprietary new chemical entities
(
NCEs
) for CNS and other
diseases and regenerative medicine (
RM
) involving hPSC-derived blood,
cartilage, heart and liver cells. Our internal drug rescue programs
are designed to utilize
CardioSafe 3D
, our customized cardiac
bioassay system, to discover and develop small molecule NCEs for
our CNS pipeline or for out-licensing. To advance potential RM
applications of our cardiac stem cell technology, we have
sublicensed to BlueRock Therapeutics LP, a next generation cell
therapy and RM company recently acquired by Bayer AG (
BlueRock Therapeutics
), rights to
certain proprietary technologies relating to the production of
cardiac stem cells for the treatment of heart disease
(the
BlueRock
Agreement
). In a manner similar to the BlueRock
Agreement, we may pursue additional collaborations or licensing
transactions involving blood, cartilage, and/or liver cells derived
from hPSCs for cell-based therapy, cell repair therapy, RM and/or
tissue engineering.
Financial Operations Overview and Results of
Operations
Our critical accounting policies and estimates and recent
accounting pronouncements are disclosed in our Annual Report on
Form 10-K for the fiscal year ended March 31, 2019, as filed with
the SEC on June 25, 2019, and in Note 3 to the accompanying
unaudited Condensed Consolidated Financial Statements included in
Part 1, Item 1 of this Report.
Summary
Net Loss
We have
not yet achieved recurring revenue-generating status from any of
our product candidates or technologies.
Since inception, we have devoted substantially all
of our time and efforts to developing our initial CNS product
candidate, AV-101, from early nonclinical studies to our ongoing
Phase 2 clinical development program in MDD, including the ELEVATE
Study. In addition, we have devoted resources to stem cell
technology research and development, bioassay development and small
molecule drug development, as well as creating, protecting and
patenting intellectual property (
IP
) related to our product candidates and
technologies, with the corollary initiatives of recruiting and
retaining personnel and raising working capital. As disclosed
above, during our fiscal year ended March 31, 2019, we acquired the
rights to develop and commercialize PH94B and PH10 and are actively
pursuing initiatives to advance their nonclinical and clinical
development.
As of September 30, 2019, we had an accumulated
deficit of approximately $192.7 million. Our net loss for the six
months ended September 30, 2019 and 2018 was approximately $11.5
million and $11.6 million, respectively, including $2.25 million in
non-cash expense in 2018 for the acquisition of the PH94B license
and the option to acquire a similar license for PH10. We expect
losses to continue for the foreseeable future, as we finalize our
ELEVATE Study, pursue further clinical development of AV-101 for
the adjunctive treatment of MDD, PH94B for SAD, PH10 for MDD, and
for additional CNS indications with respect to each of these drug
candidates.
Summary of the Six Months Ended September 30, 2019
During
the six months ended September 30, 2019, we continued to (i)
advance nonclinical development, including manufacturing, and
clinical development of AV-101 as a potential new generation
antidepressant and as a potential new therapeutic alternative for
several CNS indications with significant unmet need, (ii) advance
the nonclinical, including manufacturing, and regulatory
initiatives necessary to facilitate Phase 3 clinical development of
PH94B for SAD and Phase 2 clinical development of PH10 for MDD,
(iii) expand the regulatory and intellectual property foundation to
support broad clinical development and, ultimately,
commercialization of AV-101 in the U.S. and foreign markets, and
(iv) on a limited basis, advance drug rescue applications of our
stem cell technology to further expand our CNS
pipeline.
In
particular, during the six months ended September 30, 2019, we
continued to conduct the ELEVATE Study, for which the final patient
was dosed at the end of September 2019, produced supplies of
AV-101, and conducted and/or initiated certain Phase 3-enabling
nonclinical studies involving AV-101.
Pursuant
to our Material Transfer Cooperative Research and Development
Agreement with the VA and our arrangements with Baylor, Baylor has
recently completed dosing of healthy volunteer U.S. Military
Veterans in the Baylor Study to define a dose-response relationship
between AV-101 and relevant biomarkers related to NMDA receptor
function and other biomarkers possibly related to suicidal ideation
in U.S. Military Veterans.
We continue to pursue
initiatives to secure a broad
portfolio of patent protection for AV-101 that covers the treatment
of multiple CNS indications, unit dose formulations of AV-101
effective to treat depression, and chemical synthesis methods. With
respect to CNS treatments, we obtained patents in several countries
for the treatment of depression and we are pursuing patent
applications related to treatment of levodopa-induced dyskinesias,
certain types of neuropathic pain, tinnitus and
obsessive-compulsive disorder. Additional patent applications to
other aspects of prognostic testing and treatment using AV-101 are
under consideration.
Over
the recent and current fiscal years, we have pursued patent
applications in the U.S., Australia, China, Europe, Japan and other
selected countries and regions with significant commercial
potential. Several of these patent applications, including a patent
for treatment of MDD with AV-101 granted in Australia, were
recently allowed or have been granted in the U.S. and other major
pharmaceutical markets. Based on patent issuances or allowances
to-date in several countries, we believe that pending counterpart
patent applications related to AV-101 currently under review in
other countries also are likely to be granted, although there can
be no assurance that all pending applications will ultimately be
granted.
We
have an exclusive license from Pherin to its portfolio of patent
assets around PH94B, under clinical development for the treatment
of SAD. Patents have issued in several countries, including the
U.S., Australia, Canada, China, Europe, Japan, Korea and
Mexico.
We
also have an exclusive license from Pherin to its portfolio of
patent assets around PH10, under clinical development for the
treatment of depressive disorders. Patents in this portfolio have
issued in the U.S., Australia, China, Europe, Japan and Hong Kong.
Applications are pending in Canada, Korea and Mexico.
As with AV-101, we plan to seek regulatory exclusivity in
countries where this is available for the therapeutic use of PH94B,
with initial emphasis on treating SAD as our lead indication, and
for the therapeutic use of PH10, with our lead indication being the
treatment of MDD.
We have obtained and are pursuing patent rights to the production
of several types of stem cells and cells differentiated from those
stem cells, including cardiomyocytes, hematopoietic cells,
chondrocytes, cartilage cells and hepatocytes, as well as the use
of certain cell types that have been differentiated from
pluripotent stem cells for therapeutic purposes, including
cell-based therapy and regenerative medicine.
Subsequent
to the completion of our public offering of common stock in
February 2019, which generated $11.5 million in gross proceeds to
us, we have not completed any additional financing transactions
during the six months ended September 30, 2019. 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 AV-101, PH94B, PH10 and our stem cell
technology platform, as well as support our operating activities,
we continue to carefully manage our routine operating costs,
including our internal employee related expenses, as well as
external costs relating to regulatory consulting, contract research
and development, investor relations and corporate development,
legal, acquisition and protection of intellectual property, public
company compliance and other professional services and internal
costs.
Results of Operations
Comparison of Three Months Ended September 30, 2019 and
2018
The following table summarizes the results of our operations for
the three months ended September 30, 2019 and 2018 (amounts in
thousands).
|
|
Three Months Ended September 30,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
Research
and development
|
$
4,205
|
$
5,261
|
|
General
and administrative
|
1,146
|
2,171
|
|
Total
operating expenses
|
5,351
|
7,432
|
|
|
|
|
|
Loss
from operations
|
(5,351
)
|
(7,432
)
|
|
|
|
|
|
Interest
income (expense), net
|
15
|
(3
)
|
|
|
|
|
|
Loss
before income taxes
|
(5,336
)
|
(7,435
)
|
|
Income
taxes
|
-
|
-
|
|
|
|
|
|
Net
loss
|
(5,336
)
|
(7,435
)
|
|
Accrued
dividend on Series B Preferred Stock
|
(314
)
|
(284
)
|
|
Net
loss attributable to common stockholders
|
$
(5,650
)
|
$
(7,719
)
|
Revenue
We reported no revenue for either the quarter ended September 30,
2019 or September 30, 2018 and we presently have no recurring
revenue generating arrangements with respect to AV-101, PH94B, PH10
or other potential product candidates. While we may potentially
receive payments or royalties in the future under our December 2016
BlueRock Agreement, which has been assumed by Bayer in connection
with its acquisition of BlueRock, in the event certain
performance-based milestones and commercial sales are achieved,
there can be no assurance that the BlueRock Agreement will provide
revenue to us in the near term or at all.
Research and Development Expense
Research and development expense decreased from $5.3 million to
$4.2 million for the quarters ended September 30, 2019 and 2018,
respectively. Expense for the quarter ended September 30, 2018
included $2.25 million noncash expense associated with the
acquisition of our license to develop and commercialize PH94B and
an option to acquire a similar license for PH10, which was
subsequently exercised. While this expense did not recur in the
quarter ended September 30, 2019, we incurred increased expenses
for the ELEVATE Study and various AV-101 nonclinical activities,
including manufacturing additional quantities of AV-101 and other
developmental studies, as well as nonclinical activities, including
manufacturing, supporting the continuing development of PH94B and
PH10. Additional noncash expenses included in research and
development expense (excluding the noncash PH94B license and PH10
option acquisition in 2018), primarily stock-based compensation and
depreciation, accounted for approximately $190,000 and $474,000 in
the quarters ended September 30, 2019 and 2018, respectively. The
following table indicates the primary components of research and
development expense for each of the periods (amounts in
thousands):
|
|
Three Months Ended September 30,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Salaries
and benefits
|
$
343
|
$
656
|
|
Stock-based
compensation
|
167
|
451
|
|
Consulting
and other professional services
|
188
|
29
|
|
Technology
licenses and royalties
|
142
|
129
|
|
Project-related
research and supplies:
|
|
|
|
ELEVATE
Study and other AV-101 expenses
|
2,521
|
1,607
|
|
PH94B
and PH10 license and other expenses
|
670
|
2,250
|
|
Stem
cell and all other
|
30
|
23
|
|
|
3,221
|
3,880
|
|
Rent
|
132
|
104
|
|
Depreciation
|
12
|
12
|
|
Total
Research and Development Expense
|
$
4,205
|
$
5,261
|
Salaries and benefits expense reported for the quarter ended
September 30, 2018 includes a total of approximately $319,000 for
bonus payments made to our Chief Medical Officer
(
CMO
), Chief Scientific Officer (
CSO
) and members of our scientific staff during the
quarter based on achievement of goals and objectives for the fiscal
year ended March 31, 2018. Partially offsetting the absence of a
comparable bonus amount in the quarter ended September 30, 2019 is
the impact of salary increases granted to our CMO, CSO and members
of our scientific staff effective in April 2019. Bonuses based on
the achievement of goals and objectives for the fiscal year ended
March 31, 2019 were accrued during that fiscal year and had no
expense impact during the quarter ended September 30,
2019.
Stock-based compensation expense reflects the amortization of
option grants made to our CSO, CMO, scientific staff and certain
consultants since June 2016, all earlier outstanding grants having
become fully vested and amortized. Grants awarded after September
30, 2018 account for approximately $39,000 of expense in the
quarter ended September 30, 2019. Stock-based compensation expense
for the quarter ended September 30, 2018 included (i) the impact of
new options granted to our CMO, CSO, and members of our scientific
staff in early August 2018 which options were 25% vested upon grant
and vest ratably until becoming fully-vested within two years
thereafter, and (ii) the modification in late August 2018 of
outstanding options held by our CMO, CSO and members of our
scientific staff having exercise prices over $1.56 per share to
reduce the exercise price to $1.50 per share, resulting in
approximately $265,000 of expense attributable to the new option
grants and modifications, including immediate recognition of
$104,000 attributable to the modification of exercise prices.
Expense attributable to recent option grants is generally being
amortized over two-year to three-year vesting periods, with
one-quarter of the grants made in August 2018 and May 2019 being
immediately vested and expensed upon grant, in accordance with the
terms of the respective grants.
Consulting services reflects fees paid or accrued for scientific,
nonclinical and clinical development and regulatory advisory
services rendered to us by third parties, in 2018, primarily by
members of our Scientific Advisory Board and CNS Clinical and
Regulatory Advisory Board. The increase in 2019 expense also
reflects consulting and analytical services in support of our PH94B
and PH10 initiatives.
Technology license expense reflects both recurring annual license
fees, as well as legal counsel and other costs related to patent
prosecution and protection pursuant to our stem cell technology
license agreements or that we have elected to pursue for commercial
purposes. We recognize these costs as they are invoiced to us by
the licensors or counsel and they 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 with
respect to AV-101 and our stem cell technology platform. Support of
the intellectual property portfolios of PH94B and PH10 contributed
only nominally to this expense in 2019.
AV-101 project expense for each of the quarters presented primarily
reflects the costs of conducting the ELEVATE Study, including
various CRO, investigator and clinical site costs, as well as
expense incurred to manufacture additional quantities of AV-101 for
use in future Phase 3-enabling nonclinical trials and clinical
development of AV-101 for MDD and other potential CNS indications.
In addition to increased ELEVATE Study costs in 2019, we have
incurred further costs associated with various Phase 3-enabling
initiatives and nonclinical studies.
Project expenses for the quarter ended September 30, 2019 related
to PH94B and PH10 primarily reflect manufacturing and regulatory
initiatives necessary to facilitate pivotal Phase 3 clinical
development of PH94B for SAD and to facilitate Phase 2 development
of PH10 for MDD. As disclosed earlier, noncash expense of $2.25
million in 2018 related to the acquisition of the PH94B license and
PH10 option and represents the fair value of an aggregate of
1,630,435 unregistered shares of our common stock issued to Pherin
in September 2018 under the terms of the license and option
agreements.
Stem cell and other project related expenses reflects costs
associated with drug rescue applications of our stem cell
technology in both years.
The increase in rent expense reflects our implementation of ASC 842
effective April 1, 2019 and the requirement to recognize, as an
operating lease, a right-of-use asset and a lease liability, both
of which must be amortized over the expected lease term, for our
South San Francisco office and laboratory facility lease. The
underlying lease reflects commercial property rents prevalent in
the South San Francisco real estate market at the time of our
November 2016 lease amendment extending the lease of our
headquarters facilities in South San Francisco by five years from
July 31, 2017 to July 31, 2022. In implementing ASC 842, we also
projected that we would exercise a five-year option to extend our
tenancy under the lease when it expires in 2022, which extension
would be subject to market rent conditions at that time. We
allocate total rent expense for our South San Francisco facility
between research and development expense and general and
administrative expense based generally on square footage dedicated
to each function. Refer to Note 10,
Commitments and
Contingencies
, in the
accompanying Condensed Consolidated Financial Statements in Part I
of this Report for additional information.
General and Administrative Expense
General and administrative expense decreased to approximately $1.1
million, from approximately $2.2 million for the quarters ended
September 30, 2019 and 2018, respectively. Noncash expense,
$272,000 in the quarter ended September 30, 2019, decreased from
$792,000 in the quarter ended September 30, 2018 primarily due to
decreases in stock-based compensation and noncash components of
investor and public relations expenses, while cash-based salaries
and benefits decreased by $426,000. The following table indicates
the primary components of general and administrative expense for
each of the periods (amounts in thousands):
|
|
Three Months Ended September 30,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Salaries
and benefits
|
$
340
|
$
766
|
|
Stock-based
compensation
|
226
|
722
|
|
Board
fees
|
46
|
39
|
|
Legal,
accounting and other professional fees
|
90
|
105
|
|
Investor
and public relations
|
197
|
313
|
|
Insurance
|
88
|
71
|
|
Travel
expenses
|
6
|
39
|
|
Rent
and utilities
|
87
|
72
|
|
All
other expenses
|
66
|
44
|
|
|
$
1,146
|
$
2,171
|
Salaries and benefits expense reported for the quarter ended
September 30, 2018 includes a total of approximately $435,000 for
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 during the quarter
based on achievement of goals and objectives for the fiscal year
ended March 31, 2018. Partially offsetting the absence of a
comparable bonus amount in the quarter ended September 30, 2019 is
the impact of salary increases granted to our CEO, CFO,
VP-Corporate Development and a member of our administrative staff
effective in April 2019. Bonuses based on the achievement of goals
and objectives for the fiscal year ended March 31, 2019 were
accrued during that fiscal year and had no expense impact during
the quarter ended September 30, 2019.
Stock-based compensation expense reflects the amortization of
option grants made to our CEO, CFO, VP Corporate Development,
administrative staff, independent members of our Board and certain
consultants since June 2016, all earlier grants having become fully
vested and amortized. Grants awarded after September 30, 2018
account for approximately $89,000 of the expense in the quarter
ended September 30, 2019. Stock-based compensation expense for the
quarter ended September 30, 2018 included (i) the impact of new
options granted to our CEO, CFO, VP-Corporate Development and a
member of our administrative staff in early August 2018 which
options were 25% vested upon grant and vest ratably until becoming
fully-vested within two years thereafter, and (ii) the modification
in late August 2018 of outstanding options held by our CEO, CFO,
VP-Corporate Development and a member of our administrative staff
having exercise prices over $1.56 per share to reduce the exercise
price to $1.50 per share, resulting in approximately $459,000 of
expense attributable to the new option grants and modifications,
including immediate recognition of $154,000 attributable to the
modification of exercise prices. Expense attributable to recent
option grants is generally being amortized over two-year to
three-year vesting periods, with one-quarter of the grants made in
August 2018, January 2019, May 2019 and September 2019 being
immediately vested and expensed upon grant, in accordance with the
terms of the respective grants.
Board fees represents fees paid as consideration for the Board and
Board Committee services to the independent members of our Board.
The 2019 increase reflects the addition of a new independent member
to our Board in January 2019.
Legal, accounting and other professional fees for the quarters
ended September 30, 2019 and 2018 includes expense related to
routine legal fees as well as the accounting expense related to the
quarterly review of our financial statements. In 2019 and 2018, we
also incurred $30,000 and $3,000, respectively, attributable to
services provided by international business development
consultants.
Investor and public relations expense includes the fees of our
various external service providers for a broad spectrum of investor
relations and public relations services, and well as market
awareness and strategic advisory and support functions and
initiatives that included numerous meetings in multiple U.S.
markets and other communication activities focused on expanding
market awareness of the Company and its research and development
programs, including among registered investment professionals and
investment advisors, and individual and institutional investors. In
the quarter ended September 30, 2019, in addition to cash fees and
expenses we incurred for such activities, we recognized
approximately $26,000 of noncash expense attributable to the
amortization of the fair value of stock and warrants granted in the
prior fiscal year to various corporate development, investor
relations, and market awareness service providers. At September 30,
2019, the fair value of the securities granted has been fully
amortized. In the quarter ended September 30, 2018, in addition to
cash fees and expenses we incurred, we granted an aggregate of
50,000 unregistered shares of our common stock and four-year
warrants to purchase an aggregate of 288,000 unregistered shares of
our common stock having an aggregate fair value of approximately
$336,000 to various corporate development, investor relations, and
market awareness service providers and recognized non-cash expense
of approximately $65,000. The balance of the fair value of the
securities granted was recorded as a prepaid expense at September
30, 2018 and was amortized over the remaining period of the
respective contracts.
In both periods, travel expense reflects costs associated with
management presentations and meetings held in multiple U.S.
markets, and certain international markets in 2019, with existing
and potential individual and institutional investors, investment
professionals and advisors, media, and securities analysts, as well
as various investor relations, market awareness and corporate
development and partnering initiatives and in monitoring the
progress of our ELEVATE Study in both years.
The increase in rent expense reflects our implementation of ASC 842
effective April 1, 2019 and the requirement to recognize, as an
operating lease, a right-of-use asset and a lease liability, both
of which must be amortized over the expected lease term, for our
South San Francisco office and laboratory facility lease. The
underlying lease reflects commercial property rents prevalent in
the South San Francisco real estate market at the time of our
November 2016 lease amendment extending the lease of our
headquarters facilities in South San Francisco by five years from
July 31, 2017 to July 31, 2022. In implementing ASC 842, we also
projected that we would exercise a five-year option to extend our
tenancy under the lease when it expires in 2022, which extension
would be subject to market rent conditions at that time. We
allocate total rent expense for our South San Francisco facility
between research and development expense and general and
administrative expense based generally on square footage dedicated
to each function. Refer to Note 10,
Commitments and
Contingencies
, in the
accompanying Condensed Consolidated Financial Statements in Part I
of this Report for additional information.
Interest and Other Expenses
Interest income, net of interest expense, totaled $15,400 for the
quarter ended September 30, 2019 compared to interest expense of
$2,900 for the quarter ended September 30, 2018. The following
table indicates the primary components of interest income and
expense for each of the periods (amounts in
thousands):
|
|
Three Months Ended September 30,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Interest
income
|
$
19
|
$
-
|
|
Interest
expense on premium financing and capital lease (2018)
|
(4
)
|
(3
)
|
|
Interest
income (expense), net
|
$
15
|
$
(3
)
|
Following
the completion of our public offering in February 2019, which
generated $11.5 million in gross proceeds to us, during the current
fiscal year, we deposited a portion of the proceeds in
interest-bearing cash equivalent accounts and earned interest
income.
Interest expense in both
periods relates to interest paid on insurance premium financing
notes and on a lease of office equipment treated as a capitalized
lease in 2018 and as a financing lease subject to ASC 842 in
2019.
We
recognized $313,800 and
$283,600 for
the quarters ended September 30, 2019 and 2018, respectively,
representing the 10% cumulative dividend payable on outstanding
shares of Series B Preferred as an additional deduction in arriving
at net loss attributable to common stockholders in the
accompanying Condensed Consolidated Statement of Operations and
Comprehensive Loss included in Part I of this Report. There have
been no conversions of outstanding shares of Series B Preferred
stock into shares of our common stock since August
2016.
Comparison of Six Months Ended September 30, 2019 and
2018
The following table summarizes the results of our operations for
the six months ended September 30, 2019 and 2018 (amounts in
thousands).
|
|
Six Months Ended September 30,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
Research
and development
|
$
8,519
|
$
8,005
|
|
General
and administrative
|
3,056
|
3,637
|
|
Total
operating expenses
|
11,575
|
11,642
|
|
|
|
|
|
Loss
from operations
|
(11,575
)
|
(11,642
)
|
|
|
|
|
|
Interest
income (expense), net
|
32
|
(5
)
|
|
|
|
|
|
Loss
before income taxes
|
(11,543
)
|
(11,647
)
|
|
Income
taxes
|
(2
)
|
(2
)
|
|
|
|
|
|
Net
loss
|
(11,545
)
|
(11,649
)
|
|
Accrued
dividend on Series B Preferred Stock
|
(616
)
|
(557
)
|
|
Net
loss attributable to common stockholders
|
$
(12,161
)
|
$
(12,206
)
|
Revenue
We reported no revenue for either the six months ended September
30, 2019 or 2018 and we presently have no recurring revenue
generating arrangements with respect to AV-101, PH94B, PH10 or
other potential product candidates. While we may potentially
receive payments or royalties in the future under our December 2016
BlueRock Agreement in the event certain performance-based
milestones and commercial sales are achieved, there can be no
assurance that the BlueRock Agreement will provide revenue to us in
the near term or at all.
Research and Development Expense
Research and development expense increased to $8.5 million compared
to $8.0 million for the six months ended September 30, 2019 and
2018, respectively. Continuing expenses of the ELEVATE Study and
various AV-101 nonclinical activities, including manufacturing
additional quantities of AV-101 and other developmental studies, as
well as nonclinical activities supporting the continuing
development of PH94B for SAD and PH10 for MDD are the primary
contributors to the increase in research and development expense,
more than offsetting the $2.25 million noncash expense in the six
months ended September 30, 2018 associated with the acquisition of
our license to develop and commercialize PH94B and an option to
acquire a similar license for PH10, which was subsequently
exercised. Additional noncash expenses included in research and
development expense (excluding the noncash PH94B license and PH10
option acquisition in 2018), primarily stock compensation and
depreciation, accounted for approximately $607,000 and $729,000 in
the six months ended September 30, 2019 and 2018, respectively. The
following table indicates the primary components of research and
development expense for each of the periods (amounts in
thousands):
|
|
Six Months Ended September 30,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Salaries
and benefits
|
$
683
|
$
972
|
|
Stock-based
compensation
|
558
|
681
|
|
Consulting
and other professional services
|
324
|
43
|
|
Technology
licenses and royalties
|
309
|
253
|
|
Project-related
research and supplies:
|
|
|
|
ELEVATE
Study and other AV-101 expenses
|
5,187
|
3,510
|
|
PH94B
and PH10 licenses and other expenses
|
1,094
|
2,250
|
|
Stem
cell and all other
|
72
|
62
|
|
|
6,353
|
5,822
|
|
Rent
|
268
|
208
|
|
Depreciation
|
24
|
24
|
|
All
other
|
-
|
2
|
|
Total
Research and Development Expense
|
$
8,519
|
$
8,005
|
Salaries and benefits expense reported for the six months ended
September 30, 2018 includes a total of approximately $319,000 for
bonus payments made to our CMO, CSO and members of our scientific
staff during the second quarter based on achievement of goals and
objectives for the fiscal year ended March 31, 2018. Partially
offsetting the absence of a comparable bonus amount in the six
months ended September 30, 2019 is the impact of salary increases
granted to our CMO, CSO and members of our scientific staff
effective in April 2019. Bonuses based on the achievement of goals
and objectives for the fiscal year ended March 31, 2019 were
accrued during that fiscal year and had no expense impact during
the six months ended September 30, 2019.
Stock-based compensation expense reflects the amortization of
option grants made to our CSO, CMO, scientific staff and certain
consultants since June 2016, all earlier outstanding grants having
become fully vested and amortized. Grants awarded after September
30, 2018 account for approximately $135,000 of expense in the six
months ended September 30, 2019. Stock-based compensation expense
for the six months ended September 30, 2018 included (i) the impact
of new options granted to our CMO, CSO, and members of our
scientific staff in early August 2018 which options were 25% vested
upon grant and vest ratably until becoming fully-vested within two
years thereafter, and (ii) the modification in late August 2018 of
outstanding options held by our CMO, CSO and members of our
scientific staff having exercise prices over $1.56 per share to
reduce the exercise price to $1.50 per share, resulting in
approximately $362,000 of expense attributable to the new option
grants and modifications, including immediate recognition of
$104,000 attributable to the modification of exercise prices.
Expense attributable to recent option grants is generally being
amortized over two-year to three-year vesting periods, with
one-quarter of the grants made in August 2018 and May 2019 being
immediately vested and expensed upon grant, in accordance with the
terms of the respective grants.
Consulting services reflects fees paid or accrued for scientific,
nonclinical and clinical development and regulatory advisory
services rendered to us by third parties, in 2018, primarily by
members of our Scientific Advisory Board and CNS Clinical and
Regulatory Advisory Board. The increase in 2019 expense also
reflects consulting and analytical services in support of our PH94B
and PH10 initiatives.
Technology license expense reflects both recurring annual license
fees, as well as legal counsel and other costs related to patent
prosecution and protection pursuant to our stem cell technology
license agreements or that we have elected to pursue for commercial
purposes. We recognize these costs as they are invoiced to us by
the licensors or counsel and they 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 with
respect to AV-101 and our stem cell technology platform. Support of
the intellectual property portfolios of PH94B and PH10 contributed
only nominally to this expense in 2019.
AV-101 project expense for each of the periods presented primarily
reflects the costs of conducting the ELEVATE Study, including
various CRO, investigator and clinical site costs, as well as
expense incurred to manufacture additional quantities of AV-101 for
use in future Phase 3-enabling nonclinical trials and clinical
development of AV-101 for MDD and other potential CNS indications.
In addition to increased ELEVATE Study costs in 2019, we have
incurred further costs associated with various Phase 3-enabling
initiatives and nonclinical studies.
Expenses for the six months ended September 30, 2019 related to
PH94B and PH10 primarily reflect manufacturing and regulatory
initiatives necessary to facilitate pivotal Phase 3 clinical
development of PH94B for SAD and to facilitate Phase 2 development
of PH10 for MDD. As disclosed earlier, noncash expense of $2.25
million in 2018 related to the acquisition of the PH94B license and
PH10 option and represents the fair value of an aggregate of
1,630,435 unregistered shares of our common stock issued to Pherin
in September 2018 under the terms of the license and option
agreements.
Stem cell and other project related expenses reflects costs
associated with drug rescue applications of our stem cell
technology in both years.
The increase in rent expense reflects our implementation of ASC 842
effective April 1, 2019 and the requirement to recognize, as an
operating lease, a right-of-use asset and a lease liability, both
of which must be amortized over the expected lease term, for our
South San Francisco office and laboratory facility lease. The
underlying lease reflects commercial property rents prevalent in
the South San Francisco real estate market at the time of our
November 2016 lease amendment extending the lease of our
headquarters facilities in South San Francisco by five years from
July 31, 2017 to July 31, 2022. In implementing ASC 842, we also
projected that we would exercise a five-year option to extend our
tenancy under the lease when it expires in 2022, which extension
would be subject to market rent conditions at that time. We
allocate total rent expense for our South San Francisco facility
between research and development expense and general and
administrative expense based generally on square footage dedicated
to each function. Refer to Note 10,
Commitments and
Contingencies
, in the
accompanying Condensed Consolidated Financial Statements in Part I
of this Report for additional information.
General and Administrative Expense
General and administrative expense decreased to approximately $3.1
million, from approximately $3.6 million for the six months ended
September 30, 2019 and 2018, respectively. Noncash expense,
$1,044,000 for the six months ended September 30, 2019, decreased
from $1,295,000 for the six months ended September 30, 2018,
primarily due to reductions in stock-based compensation and cash
and noncash components of investor and public relations expenses,
coupled with a decrease in cash-based salaries and benefits
expense. The following table indicates the primary components of
general and administrative expense for each of the periods (amounts
in thousands):
|
|
Six Months Ended September 30,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Salaries
and benefits
|
$
684
|
$
1,065
|
|
Stock-based
compensation
|
898
|
1,104
|
|
Board
fees
|
92
|
78
|
|
Legal,
accounting and other professional fees
|
369
|
356
|
|
Investor
relations
|
501
|
599
|
|
Insurance
|
170
|
139
|
|
Travel
expenses
|
36
|
76
|
|
Rent
and utilities
|
177
|
143
|
|
All
other expenses
|
129
|
77
|
|
|
$
3,056
|
$
3,637
|
Salaries and benefits expense reported for the six months ended
September 30, 2018 includes a total of approximately $435,000 for
bonus payments made to our CEO, CFO, VP-Corporate Development and a
non-officer member of our administrative staff during the second
quarter based on achievement of goals and objectives for the fiscal
year ended March 31, 2018. Partially offsetting the absence of a
comparable bonus amount in the six months ended September 30, 2019
is the impact of salary increases granted to our CEO, CFO,
VP-Corporate Development and a member of our administrative staff
effective in April 2019. Bonuses based on the achievement of goals
and objectives for the fiscal year ended March 31, 2019 were
accrued during that fiscal year and had no expense impact during
the six months ended September 30, 2019.
Stock-based compensation expense reflects the amortization of
option grants made to our CEO, CFO, VP Corporate Development,
administrative staff, independent members of our Board and certain
consultants since June 2016, all earlier grants having become fully
vested and amortized. Grants awarded after September 30, 2018
account for approximately $274,000 of the expense in the six months
ended September 30, 2019. Stock-based compensation expense for the
six months ended September 30, 2018 included (i) the impact of new
options granted to our CEO, CFO, VP-Corporate Development and a
member of our administrative staff in early August 2018 which
options were 25% vested upon grant and vest ratably until becoming
fully-vested within two years thereafter, and (ii) the modification
in late August 2018 of outstanding options held by our CEO, CFO,
VP-Corporate Development and a member of our administrative staff
having exercise prices over $1.56 per share to reduce the exercise
price to $1.50 per share, resulting in approximately $310,000 of
expense attributable to the new option grants and modifications,
including immediate recognition of $154,000 attributable to the
modification of exercise prices. Expense attributable to recent
option grants is generally being amortized over two-year to
three-year vesting periods, with one-quarter of the grants made in
August 2018, January 2019, May 2019 and September 2019 being
immediately vested and expensed upon grant, in accordance with the
terms of the respective grants.
Board fees represents fees paid as consideration for the Board and
Board Committee services of the independent members of our Board.
The 2019 increase reflects the addition of a new independent member
to our Board in January 2019.
Legal, accounting and other professional fees for the six months
ended September 30, 2019 and 2018 includes expense related to
routine legal fees as well as the accounting expense related to the
annual audit of the prior year’s financial statements and the
review of the quarterly financial statements for the current fiscal
year. In 2019 and 2018, we also incurred $60,000 and $13,000,
respectively, attributable to services provided by international
business development consultants.
Investor and public relations expense includes the fees of our
various external service providers for a broad spectrum of investor
relations and public relations services, and well as market
awareness and strategic advisory and support functions and
initiatives that included numerous meetings in multiple U.S.
markets and other communication activities focused on expanding
market awareness of the Company and its research and development
programs, including among registered investment professionals and
investment advisors, and individual and institutional investors. In
the six months ended September 30, 2019, in addition to cash fees
and expenses we incurred for such activities, we recognized
$105,900 of noncash expense attributable to the amortization of the
fair value of stock and warrants granted in the prior fiscal year
to various corporate development, investor relations, and market
awareness service providers. At September 30, 2019, the fair value
of the securities granted has been fully amortized. In the six
months ended September 30, 2018, in addition to cash fees and
expenses, we granted an aggregate of 100,000 unregistered shares of
our common stock to certain investor relations, market awareness
and financial advisory service providers as full or partial
compensation for their services and recognized noncash expense of
approximately $123,000 representing the fair value of the stock at
the time of issuance in the quarter ended June 30, 2018; in the
quarter ended September 30, 2018 we granted an aggregate of 50,000
unregistered shares of our common stock and four-year warrants to
purchase an aggregate of 288,000 unregistered shares of our common
stock having an aggregate fair value of approximately $336,000 to
various corporate development, investor relations, and market
awareness service providers and recognized non-cash expense of
approximately $65,000. The balance of the fair value of the
securities granted was recorded as a prepaid expense and was
amortized over the remaining period of the respective contracts,
certain of which extended into 2019.
In both periods, travel expense reflects costs associated with
management presentations and meetings held in multiple U.S.
markets, and certain international markets in 2019, with existing
and potential individual and institutional investors, investment
professionals and advisors, media, and securities analysts, as well
as various investor relations, market awareness and corporate
development and partnering initiatives and in monitoring the
progress of our ELEVATE Study in both years.
The increase in rent expense reflects our implementation of ASC 842
effective April 1, 2019 and the requirement to recognize, as an
operating lease, a right-of-use asset and a lease liability, both
of which must be amortized over the expected lease term, for our
South San Francisco office and laboratory facility lease. The
underlying lease reflects commercial property rents prevalent in
the South San Francisco real estate market at the time of our
November 2016 lease amendment extending the lease of our
headquarters facilities in South San Francisco by five years from
July 31, 2017 to July 31, 2022. In implementing ASC 842, we also
projected that we would exercise a five-year option to extend our
tenancy under the lease when it expires in 2022, which extension
would be subject to market rent conditions at that time. We
allocate total rent expense for our South San Francisco facility
between research and development expense and general and
administrative expense based generally on square footage dedicated
to each function. Refer to Note 10,
Commitments and
Contingencies
, in the
accompanying Condensed Consolidated Financial Statements in Part I
of this Report for additional information.
Interest and Other Expenses
Interest income, net of interest expense, totaled $31,900 for the
six months ended September 30, 2019 compared to interest expense of
$5,000 for the six months ended September 30, 2018. The following
table indicates the primary components of interest income and
expense for each of the periods (amounts in
thousands):
|
|
Six Months Ended September 30,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Interest
income
|
$
39
|
$
-
|
|
Interest
expense on premium financing and capital lease (2018)
|
(7
)
|
(5
)
|
|
Interest
income (expense), net
|
$
32
|
$
(5
)
|
Following
the completion of our public offering in February 2019, which
generated $11.5 million in gross proceeds to us, during the quarter
ended June 30, 2019, we deposited a portion of the proceeds in
interest-bearing cash equivalent accounts and earned interest
income.
Interest expense in both
periods relates to interest paid on insurance premium financing
notes and on a lease of office equipment treated as a capitalized
lease in 2018 and as a financing lease subject to ASC 842 in
2019.
We
recognized $616,300 and
$557,100 for
the six months ended September 30, 2019 and 2018, respectively,
representing the 10% cumulative dividend payable on outstanding
shares of Series B Preferred as an additional deduction in arriving
at net loss attributable to common stockholders in the
accompanying Condensed Consolidated Statement of Operations and
Comprehensive Loss included in Part I of this Report. There have
been no conversions of outstanding shares of Series B Preferred
stock into shares of our common stock since August
2016.
Liquidity and Capital Resources
Since our inception in May 1998 through September 30, 2019, we have
financed our operations and technology acquisitions primarily
through the issuance and sale of our equity and debt securities for
cash proceeds of approximately $79.0 million, as well as from an
aggregate of approximately $17.7 million of government research
grant awards (excluding the fair market value of government
sponsored and funded clinical trials such as the Baylor Study),
strategic collaboration payments, intellectual property
sublicensing and other revenues. Additionally, we have issued
equity securities with an approximate value at issuance of $38.1
million in non-cash acquisitions of product licenses and in
settlements of certain liabilities, including liabilities for
professional services rendered to us or as compensation for such
services.
At September 30, 2019, we had cash and cash
equivalents of approximately $4.1 million. As disclosed in Note
11,
Subsequent Events,
in the Condensed Consolidated
Financial Statements included in Item 1 of this Report, since
September 30, 2019, we have completed a self-placed private
placement of units consisting of unregistered shares of our common
stock and warrants to purchase unregistered shares of our common
stock pursuant to which we have received cash proceeds of
$600,000
(the
Fall 2019 Private
Placement
). Nevertheless, we
believe that our cash position at September 30, 2019, including the
proceeds from the Fall 2019 Private Placement, considered with our
recurring and anticipated losses, negative cash flows from
operations and limited stockholders’ equity make it probable,
in the absence of additional financing, that we will not have
sufficient resources to fund our planned operations for the twelve
months following the issuance of these financial statements, during
which time we plan to finalize our ELEVATE study, prepare for and
launch a pivotal Phase 3 clinical trial of PH94B for SAD, prepare
for additional Phase 2 clinical studies and certain nonclinical
studies involving AV-101 and prepare for a Phase 2b clinical trial
of PH10 for MDD, and raises substantial doubt that we can continue
as a going concern. When necessary and advantageous, we plan to
raise additional capital, primarily through the sale of our equity
securities in one or more private placements to accredited
investors or in public offerings. Subject to certain restrictions,
our Registration Statement on Form S-3 (Registration No.
333-234025) (the
S-3 Registration
Statement
), which became
effective on October 7, 2019, is available for future sales of our
equity securities in one or more public offerings from time to
time. While we may make additional sales of our equity securities
under the S-3 Registration Statement, we do not have an obligation
to do so. As we have been in the past, we expect that, when and as
necessary, we will be successful in raising additional capital from
the sale of our equity securities either in one or more public
offerings or in one or more private placement transactions with
individual accredited investors or
institutions.
In addition to the potential sale of our equity securities, we may
also seek to enter research, development and/or commercialization
collaborations that could generate revenue or provide funding,
including non-dilutive funding, for development of AV-101, PH94B,
PH10 and/or additional product candidates. We may also seek
additional government grant awards or agreements similar to our
relationships with Baylor and the VA in connection with the Baylor
Study. Such strategic collaborations may provide non-dilutive
resources to advance our strategic initiatives while reducing a
portion of our future cash outlays and working capital
requirements. We may also pursue intellectual property arrangements
similar to the BlueRock Agreement with other parties. Although we
may seek additional collaborations that could generate revenue
and/or provide non-dilutive funding for development of AV-101,
PH94B, PH10 or other product candidates, as well as new government
grant awards and/or agreements, no assurance can be provided that
any such collaborations, awards or agreements will occur in the
future.
Our future working capital requirements will depend on many
factors, including, without limitation, the scope and nature of
opportunities related to our success and the success of certain
other companies in clinical trials, including our development and
commercialization of our current product candidates and various
applications of our stem cell technology platform, the availability
of, and our ability to obtain, government grant awards and
agreements, and our ability to enter into collaborations on terms
acceptable to us. To further advance the clinical development of
AV-101, PH94B, PH10 and, to a lesser extent, our stem cell
technology platform, as well as support our operating activities,
we plan to continue to carefully manage our routine operating
costs, including our employee headcount and related expenses, as
well as costs relating to regulatory consulting, contract research
and development, investor relations and corporate development,
legal, acquisition and protection of intellectual property, public
company compliance and other professional services and operating
costs.
Notwithstanding the foregoing, there can be no assurance that
future financings or government or other strategic collaborations
will be available to us in sufficient amounts, in a timely manner,
or on terms acceptable to us, if at all. If we are unable to obtain
substantial additional financing on a timely basis when needed in
2019 and beyond, our business, financial condition, and results of
operations may be harmed, the price of our stock may decline, we
may be required to reduce, defer, or discontinue certain of our
research and development activities and we may not be able to
continue as a going concern. As noted above, these
Condensed Consolidated Financial Statements do not include any
adjustments that might result from the negative outcome of this
uncertainty.
Cash and Cash Equivalents
The following table summarizes changes in cash and cash equivalents
for the periods stated (in thousands):
|
|
Six Months Ended September 30,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Net
cash used in operating activities
|
$
(8,898
)
|
$
(7,063
)
|
|
Net
cash used in investing activities
|
-
|
(170
)
|
|
Net
cash (used in) provided by financing activities
|
(130
)
|
4,686
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
(9,028
)
|
(2,547
)
|
|
Cash
and cash equivalents at beginning of period
|
13,100
|
10,378
|
|
Cash
and cash equivalents at end of period
|
$
4,072
|
$
7,831
|
The increase in cash used in operations results primarily from the
conduct of our ELEVATE Study, which commenced at the end of the
fourth quarter of our fiscal year ended March 31, 2018, and the
nonclinical advancement of PH94B and PH10. Cash used in investing
activities in 2018 reflects the cost of tenant improvements at our
office and laboratory facilities in South San Francisco, CA,
substantially all of which were reimbursed by our landlord under
the terms of our November 2016 lease extension, which reimbursement
is reflected in operating activities. Cash provided by financing
activities in 2018 reflects the first cash proceeds from our Summer
2018 Private Placement net of routine insurance premium financing
note and lease payments in both years.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Recent Accounting Pronouncements
For information relating to recent accounting pronouncements and
the expected impact of such pronouncements on our condensed
consolidated financial statements, see Note 3 of the Notes to
Condensed Consolidated Financial Statements included elsewhere in
this Report.
|
Item 4.
|
|
C
O
NTROLS AND PROCEDURES
|
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of
our disclosure controls and procedures (as defined in Rule
13a-15(e) of the Exchange Act) as of the end of the period covered
by this Report. Based on that evaluation, our Chief Executive
Officer and our Chief Financial Officer concluded that our
disclosure controls and procedures as of the end of the period
covered by this Report were effective.
Internal Control over Financial Reporting
In our Annual Report on Form 10-K for our fiscal year ended March
31, 2019 filed with the Securities and Exchange Commission on June
25, 2019, we identified two material weaknesses in our internal
control over financial reporting relating to (i) segregation of
duties and (ii) the functionality of our accounting
software.
Management does not believe that these weaknesses
have resulted in any deficient financial reporting and believes
that current resources would be more appropriately applied
elsewhere and when resources permit, they will alleviate such
material weaknesses through various steps, which may include the
addition of qualified financial personnel and/or the acquisition
and implementation of alternative accounting software. Accordingly,
there was no change in our internal
control over financial reporting (as defined in Rule 13a-15(f) of
the Exchange Act) that occurred during the fiscal quarter to which
this Report relates that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
PART II: O
T
HER
INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Investing in our securities involves a high degree of risk. You
should consider carefully the risks and uncertainties described
below, together with all of the other information in this Quarterly
Report on Form 10-Q (Report) and in our Annual Report on Form 10-K
filed with the Securities and Exchange Commission for the fiscal
year ended March 31, 2019 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.
Risks Related to Product Development, Regulatory Approval and
Commercialization
We depend heavily on the success of one or more of our current drug
candidates and we cannot be certain that we will be able to obtain
regulatory approval for, or successfully commercialize any of our
product candidates.
We currently have no drug products for sale and may never be able
to develop and commercialize marketable drug products. Our business
currently depends heavily on the successful development,
manufacturing, regulatory approval and commercialization of one or
more of our current drug candidates, as well as, but to a more
limited extent, our ability to acquire, license or produce, develop
and commercialize additional product candidates. Each of our
current drug candidates will require substantial additional
nonclinical and clinical development, 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 DR NCE we produce 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 intend to test and, if
approved, market any product candidate. Before obtaining regulatory
approvals for the commercial sale of any product candidate, we must
demonstrate through numerous nonclinical and clinical studies that
the product candidate is safe and effective for use in each target
indication. Research and development of product candidates in the
pharmaceutical industry is a long, expensive and uncertain process,
and delay or failure can occur at any stage of any of nonclinical
or clinical studies. This process takes many years and may also
include post-marketing studies, surveillance obligations and drug
safety programs, which would require the expenditure of substantial
resources beyond the proceeds we have raised to date. Of the large
number of drug candidates in development in the U.S., only a small
percentage will successfully complete the required FDA regulatory
approval process and will be commercialized. Accordingly, we cannot
assure you that any of our current drug candidates or any future
product candidates will be successfully developed or commercialized
in the U.S. or any market outside the U.S.
We are not permitted to market our product candidates in the U.S.
until we receive approval of a NDA from the FDA, or in any foreign
countries until we receive the requisite approval from such
countries. Obtaining FDA approval of a NDA is a complex, lengthy,
expensive and uncertain process. The FDA may refuse to permit the
filing of our NDA, delay, limit or deny approval of a NDA for many
reasons, including, among others:
●
if
we submit a NDA and it is reviewed by a FDA advisory committee, the
FDA may have difficulties scheduling an advisory committee meeting
in a timely manner or the advisory committee may recommend against
approval of our application or may recommend that the FDA require,
as a condition of approval, additional nonclinical or clinical
studies, limitations on approved labeling or distribution and use
restrictions;
●
a
FDA advisory committee may recommend, or the FDA may require, a
REMS safety program as a condition of approval or
post-approval;
●
a
FDA advisory committee or the FDA or applicable regulatory agency
may determine that there is insufficient evidence of overall
effectiveness or safety in a NDA and require additional clinical
studies;
●
the FDA or the applicable foreign regulatory
agency may determine that the manufacturing processes or facilities
of third-party contract manufacturers with which we contract do not
conform to applicable requirements, including current Good
Manufacturing Practices (
cGMPs
); or
●
the
FDA or applicable foreign regulatory agency may change its approval
policies or adopt new regulations.
Any of these factors, many of which are beyond our control, could
jeopardize our ability to obtain regulatory approval for and
successfully commercialize any current or future drug product
candidate we may develop. Any such setback in our pursuit of
regulatory approval for any product candidate would have a material
adverse effect on our business and prospects.
In addition, we anticipate that certain of our product candidates,
including PH94B and PH10, will be subject to regulation as
combination products, which means that they are composed of both a
drug product and device product. If marketed individually, each
component would be subject to different regulatory pathways and
reviewed by different centers within the FDA. Our product
candidates that are considered to be drug-device combination
products will require review and coordination by FDA’s drug
and device centers prior to approval, which may delay
approval.
A combination
product with a drug primary mode of action generally would be
reviewed and approved pursuant to the drug approval processes under
the Federal Food, Drug and Cosmetic Act of 1938. In reviewing the
NDA application for such a product, however, FDA reviewers in the
drug center could consult with their counterparts in the device
center to ensure that the device component of the combination
product met applicable requirements regarding safety,
effectiveness, durability and performance.
Under FDA regulations, combination products
are subject to cGMP requirements applicable to both drugs and
devices, including the Quality System (
QS
) regulations applicable to medical devices.
Problems associated with the device component of the combination
product candidate may delay or prevent
approval.
We have been granted Fast Track designation from the FDA for
development of AV-101 for the adjunctive treatment of MDD and for
the treatment of NP. However, these designations may not actually
lead to faster development or regulatory review or approval
processes for AV-101. Further, there is no guarantee the FDA will
grant Fast Track designation for AV-101 as a treatment option for
other CNS indications or for any of our other product candidates in
the future.
The Fast Track designation is a program offered by the FDA,
pursuant to certain mandates under the FDA Modernization Act of
1997, designed to facilitate drug development and to expedite the
review of new drugs that are intended to treat serious or life
threatening conditions. Compounds selected must demonstrate the
potential to address unmet medical needs. The FDA’s Fast
Track designation allows for close and frequent interaction with
the FDA. A designated Fast Track drug may also be considered for
priority review with a shortened review time, rolling submission,
and accelerated approval if applicable. The designation does not,
however, guarantee FDA approval or expedited approval of any
application for the product candidate.
In December 2017, the FDA granted Fast Track designation for
development of AV-101 for the adjunctive (add-on) treatment of MDD
in patients with an inadequate response to current antidepressants.
In September 2018, the FDA granted Fast Track designation for
development of AV-101 for the treatment of NP. However, these FDA
Fast Track designations may not lead to a faster development or
regulatory review or approval process for AV-101 and the FDA may
withdraw Fast Track designation of AV-101 for either or both
indications if it believes that the respective designation is no
longer supported by data from our clinical development
programs.
In addition, we may apply for Fast Track designation for AV-101 as
a treatment option for other CNS indications, and for our other
product candidates. The FDA has broad discretion whether or not to
grant a Fast Track designation, and even if we believe AV-101,
PH94B, PH10 and/or other product candidates may be eligible for
this designation, we cannot be sure that the review or approval
will compare to conventional FDA procedures.
Results of earlier clinical trials may not be predictive of the
results of later-stage clinical trials.
The results of preclinical studies and early clinical trials of
AV-101, PH94B, PH10 and/or our other future product candidates, if
any, including positive results, may not be predictive of the
results of later-stage clinical trials. AV-101, PH94B, PH10 or any
other future product candidates in later stages of clinical
development may fail to show the desired safety and efficacy
results despite having progressed through nonclinical studies and
initial clinical trials. Many companies in the biopharmaceutical
industry have suffered significant setbacks in advanced clinical
trials due to adverse safety profiles or lack of efficacy,
notwithstanding promising results in earlier studies. Similarly,
our future clinical trial results may not be successful for these
or other reasons.
Moreover, nonclinical and clinical data are often susceptible to
varying interpretations and analyses, and many companies that
believed their product candidates performed satisfactorily in
nonclinical studies and clinical trials nonetheless failed to
obtain FDA approval. With respect to our current product
candidates, if our ELEVATE Study, any future clinical study of
AV-101, one or more of the future Phase 3 clinical trials of PH94B
for SAD or a future Phase 2 clinical trial of PH10 for MDD fail(s)
to produce positive results, the development timeline and
regulatory approval and commercialization prospects for AV-101,
PH94B, or PH10 and, correspondingly, our business and financial
prospects, could be materially adversely affected.
This drug candidate development risk is heightened by any changes
in planned timing or nature of clinical trials compared to
completed clinical trials. As product candidates are developed
through preclinical to early- and late-stage clinical trials
towards regulatory approval and commercialization, it is customary
that various aspects of the development program, such as
manufacturing and methods of administration, are altered along the
way in an effort to optimize processes and results. While these
types of changes are common and are intended to optimize the
product candidates for later stage clinical trials, approval and
commercialization, such changes do carry the risk that they will
not achieve these intended objectives.
For example, the results of planned clinical trials may be
adversely affected if we or any of our collaborators seek to
optimize and scale-up production of a product candidate. In such
case, we will need to demonstrate comparability between the newly
manufactured drug substance and/or drug product relative to the
previously manufactured drug substance and/or drug product.
Demonstrating comparability may cause us to incur additional costs
or delay initiation or completion of our clinical trials, including
the need to initiate a dose escalation study and, if unsuccessful,
could require us to complete additional nonclinical or clinical
studies of our product candidates.
If serious adverse events or other undesirable side effects or
safety concerns attributable to AV-101 are identified during the
Baylor Study, other investigator-sponsored clinical trials, in our
clinical trials of AV-101, including our ELEVATE study, or our
clinical trials of PH94B or PH10, it may adversely affect or delay
our clinical development and commercialization of AV-101, PH94B or
PH10.
Undesirable side effects or safety concerns caused by our product
candidates could cause us or regulatory authorities to interrupt,
delay or halt clinical trials and could result in a more
restrictive label or the delay or denial of regulatory
approval. AV-101 was previously tested by the NIMH in the NIMH
Study, is currently being tested by Baylor in the Baylor Study and
may be subjected to testing in the future for other CNS indications
in additional investigator-sponsored clinical trials. Although no
treatment-related serious adverse events (
SAEs
) were observed in the NIMH Study, if
treatment-related SAEs or other undesirable side effects or safety
concerns, or unexpected characteristics attributable to AV-101 are
observed in the Baylor Study other investigator-sponsored clinical
trials of AV-101, our clinical trials of AV-101, including our
ELEVATE Study, or in our future clinical trials of PH94B or PH10,
it may adversely affect or delay our clinical development and
commercialization of AV-101, PH94B or PH10, and the occurrence of
these events could have a material adverse effect on our business
and financial prospects. Results of our future clinical trials
could reveal a high and unacceptable severity and prevalence of
adverse side effects. In such an event, our trials could be
suspended or terminated and the FDA or other regulatory agency
could order us to cease further development of or deny approval of
our product candidates for any or all targeted indications. The
drug-related side effects could affect patient recruitment or the
ability of enrolled patients to complete the trial or result in
potential product liability claims.
Additionally, if any of our product candidates receives marketing
approval and we or others later identify undesirable or
unacceptable side effects 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
clinical trials and nonclinical studies of AV-101, PH94B, PH10 or
other our product candidates could result in increased costs to us
and could delay, prevent or limit our ability to generate revenue
and continue our business.
We will need to complete our ELEVATE Study, at least two pivotal
Phase 3 clinical trials, additional toxicology and other standard
nonclinical and clinical safety studies, as well as certain
standard smaller clinical studies prior to the submission of any
NDA for regulatory approval for AV-101 as an add-on treatment for
MDD in patients with an inadequate response to current ADs, or any
other CNS indication. Similarly, we will need to complete at least
two pivotal Phase 3 clinical studies of PH94B, additional
toxicology and other standard nonclinical and clinical safety
studies, as well as certain standard smaller clinical studies prior
to our submission of an NDA for regulatory approval of PH94B as an
on-demand treatment for SAD or any CNS other indication. For PH10,
we will need to complete at least one additional Phase 2 clinical
study, two pivotal Phase 3 clinical trials, additional toxicology
and other standard nonclinical and clinical safety studies, as well
as certain standard smaller clinical studies prior to the
submission of an NDA for regulatory approval of PH10 as treatment
for MDD, or any other CNS indication. Successful completion of our
nonclinical and clinical trials is a prerequisite to submitting an
NDA and, consequently, the ultimate approval required before
commercial marketing of any product candidate we may develop.
Except as disclosed herein, we do not know whether the Baylor
Study, our ELEVATE Study or any of our future-planned nonclinical
and clinical trials of AV-101, PH94B, PH10 or any other product
candidate will be completed on schedule, if at all, as the
commencement and completion of nonclinical and clinical trials can
be delayed or prevented for a number of reasons, including, among
others:
●
the
regulatory authority may deny permission to proceed with planned
clinical trials or any other clinical trials we may initiate, or
may place a planned or ongoing clinical trial on hold;
●
delays
in filing or receiving approvals from regulatory authorities of
additional INDs that may be required;
●
negative
or ambiguous results from nonclinical or clinical
studies;
●
delays
in reaching or failing to reach agreement on acceptable terms with
prospective CROs, investigators and clinical trial sites, the terms
of which can be subject to extensive negotiation and may vary
significantly among different CROs, investigators and clinical
trial sites;
●
delays
in the manufacturing of, or insufficient supply of product
candidates necessary to conduct nonclinical or clinical trials,
including delays in the manufacturing of sufficient supply of drug
substance or finished drug product;
●
inability
to manufacture or obtain clinical supplies of a product candidate
meeting required quality standards;
●
difficulties obtaining Institutional Review Board
(
IRB
) approval to conduct a clinical trial at a
prospective clinical site or sites;
●
challenges
in recruiting and enrolling patients to participate in clinical
trials, including the proximity of patients to clinical trial
sites;
●
eligibility
criteria for a clinical trial, the nature of a clinical trial
protocol, the availability of approved effective treatments for the
relevant disease and competition from other clinical trial programs
for similar indications;
●
severe
or unexpected adverse drug-related side effects experienced by
patients in a clinical trial;
●
delays
in validating any endpoints utilized in a clinical
trial;
●
the
regulatory authority may disagree with our clinical trial design
and our interpretation of data from prior nonclinical studies or
clinical trials, or may change the requirements for approval even
after it has reviewed and commented on the design for our clinical
trials;
●
reports
from nonclinical or clinical testing of other CNS indications or
therapies that raise safety or efficacy concerns; and
●
difficulties
retaining patients who have enrolled in a clinical trial but may be
prone to withdraw due to rigors of the clinical trial, lack of
efficacy, side effects, personal issues or loss of
interest.
Clinical trials may also be delayed or terminated prior to
completion as a result of ambiguous or negative interim results. In
addition, a clinical trial may be suspended or terminated by us,
the regulatory authority, the IRBs at the sites where the IRBs are
overseeing a clinical trial, a data and safety monitoring board
(
DSMB
), overseeing the clinical trial at issue or other
regulatory authorities due to a number of factors, including, among
others:
●
failure
to conduct the clinical trial in accordance with regulatory
requirements or approved clinical protocols;
●
inspection
of the clinical trial operations or trial sites by the regulatory
authority that reveals deficiencies or violations that require us
to undertake corrective action, including the imposition of a
clinical hold;
●
unforeseen
safety issues, including any that could be identified in
nonclinical carcinogenicity studies, adverse side effects or lack
of effectiveness;
●
changes
in government regulations or administrative actions;
●
problems
with clinical supply materials that may lead to regulatory actions;
and
●
lack
of adequate funding to continue nonclinical or clinical
studies.
Changes in regulatory requirements, regulatory guidance or
unanticipated events during our nonclinical studies and clinical
trials of AV-101, PH94B, PH10 or other product candidates may
occur, which may result in changes to nonclinical studies and
clinical trial protocols or additional nonclinical studies and
clinical trial requirements, which could result in increased costs
to us and could delay our development timeline.
Changes in regulatory requirements, guidance or unanticipated
events during our nonclinical studies and clinical trials of
AV-101, PH94B, PH10 or other product candidates may force us to
amend nonclinical studies and clinical trial protocols or the
regulatory authority may impose additional nonclinical studies and
clinical trial requirements. Amendments or changes to our clinical
trial protocols would require resubmission to the regulatory
authority and IRBs for review and approval, which may adversely
impact the cost, timing or successful completion of clinical
trials. Similarly, amendments to our nonclinical studies may
adversely impact the cost, timing, or successful completion of
those nonclinical studies. If we experience delays completing, or
if we terminate, any of our nonclinical studies or clinical trials,
or if we are required to conduct additional nonclinical studies or
clinical trials, the commercial prospects for AV-101, PH94B, PH10
or other product candidates may be harmed and our ability to
generate product revenue will be delayed.
We rely, and expect that we will continue to rely, on third parties
to conduct our nonclinical and clinical trials of our current
product candidates and will continue to do so for any other future
product candidates. If these third parties do not successfully
carry out their contractual duties and/or meet expected deadlines,
completion of our nonclinical or clinical trials and development of
AV-101, PH94B, PH10 or other future product candidates may be
delayed and we may not be able to obtain regulatory approval for or
commercialize AV-101, PH94B, PH10 or other future product
candidates and our business could be substantially
harmed.
By strategic design, we do not have the internal staff resources to
independently conduct nonclinical and clinical trials of our
product candidates completely on our own. We rely on our extensive
network of strategic relationships with various academic research
centers, medical institutions, nonclinical and clinical
investigators, contract laboratories and other third parties, such
as CROs, to assist us to conduct and complete nonclinical and
clinical trials of our product candidates. We enter into agreements
with third-party CROs to provide monitors for and to manage data
for our clinical trials, as well as provide other services
necessary to prepare for, conduct and complete clinical trials. We
rely heavily on these and other third-parties for execution of
nonclinical and clinical trials for our product candidates and we
control only certain aspects of their activities. As a result, we
have less direct control over the conduct, timing and completion of
these nonclinical and clinical trials and the management of data
developed through nonclinical and clinical trials than would be the
case if we were relying entirely upon our own internal staff
resources. Communicating with outside parties can also be
challenging, potentially leading to mistakes as well as
difficulties in coordinating activities. Outside parties
may:
●
have
staffing difficulties and/or undertake obligations beyond their
anticipated capabilities and resources;
●
fail
to comply with contractual obligations;
●
experience
regulatory compliance issues;
●
undergo
changes in priorities or become financially distressed;
or
●
form
relationships with other entities, some of which may be our
competitors.
These factors may materially adversely affect the willingness or
ability of third parties to conduct our nonclinical and clinical
trials and may subject us to unexpected cost increases that are
beyond our control. Nevertheless, we are responsible for ensuring
that each of our nonclinical studies and clinical trials is
conducted and completed in accordance with the applicable protocol,
legal, regulatory and scientific requirements and standards, and
our reliance on CROs, Baylor or other independent investigators
does not relieve us of our regulatory responsibilities. We and our
CROs, Baylor and any investigator in an investigator-sponsored
study are required to comply with regulations and guidelines,
including current Good Clinical Practice regulations
(
cGCPs
) for conducting, monitoring, recording and
reporting the results of clinical trials to ensure that the data
and results are scientifically credible and accurate, and that the
trial patients are adequately informed of the potential risks of
participating in clinical trials. These regulations are enforced by
the FDA, the Competent Authorities of the Member States of the
European Economic Area and comparable foreign regulatory
authorities for any products in clinical development. The FDA
enforces cGCP regulations through periodic inspections of clinical
trial sponsors, principal investigators and trial sites. If we, any
of our CROs or any of our third-party collaborators fail to comply
with applicable cGCPs, the clinical data generated in clinical
trials involving our product candidates may be deemed unreliable
and the FDA or comparable foreign regulatory authorities may
require us to perform additional clinical trials before approving
our marketing applications. We cannot assure you that, upon
inspection, the FDA will determine that any of our clinical trials
comply with cGCPs. In addition, our clinical trials must be
conducted with product candidates produced under cGMPs and will
require a large number of test patients. Our failure or the failure
of our CROs or other third-party collaborators to comply with these
regulations may require us to repeat clinical trials, which would
delay the regulatory approval process and could also subject us to
enforcement action up to and including civil and criminal
penalties.
Although we design our clinical trials for our product candidates,
our clinical development strategy involves having CROs and other
third-party investigators and medical institutions conduct clinical
trials of our product candidates. As a result, many important
aspects of our drug development programs are outside of our direct
control. In addition, although CROs, or independent investigators
or medical institutions, as the case may be, may not perform all of
their obligations under arrangements with us or in compliance with
applicable regulatory requirements, under certain circumstances, we
may be responsible and subject to enforcement action that may
include civil penalties up to and including criminal prosecution
for any violations of FDA laws and regulations during the conduct
of clinical trials of our product candidates. If such third parties
do not perform clinical trials of our product candidates in a
satisfactory manner, breach their obligations to us or fail to
comply with applicable regulatory requirements, the development and
commercialization of our product candidates may be delayed or our
development program materially and irreversibly harmed. In certain
cases, including the Baylor Study and other investigator-sponsored
clinical studies, we cannot control the amount and timing of
resources these third-parties devote to clinical trials involving
our product candidates. If we are unable to rely on nonclinical and
clinical data collected by our third-party collaborators, we could
be required to repeat, extend the duration of, or increase the size
of our clinical trials and this could significantly delay
commercialization and require significantly greater
expenditures.
If our relationships with one or more of our third-party
collaborators terminates, we may not be able to enter into
arrangements with alternative third-party
collaborators. If such third-party collaborators,
including our CROs, Baylor or the VA do not successfully carry out
their contractual duties or obligations or meet expected deadlines,
if they need to be replaced or if the quality or accuracy of the
clinical data they obtain is compromised due to their failure to
adhere to applicable clinical protocols, regulatory requirements or
for other reasons, any clinical trials that such third-parties are
associated with may be extended, delayed or terminated, and we may
not be able to obtain regulatory approval for or successfully
develop and commercialize our product candidates. As a result, we
believe that our financial results and the commercial prospects for
our product candidates in the subject indication would be harmed,
our costs would increase and our ability to generate revenue would
be delayed.
We rely completely on third-parties to manufacture, formulate, hold
and distribute supplies of our product candidates for all
nonclinical and clinical studies, and we intend to continue to rely
on third parties to produce all nonclinical, clinical and
commercial supplies of our product candidates in the
future.
By strategic design, we do not currently have, nor do we plan to
acquire or develop, internal infrastructure or technical
capabilities to manufacture, formulate, hold or distribute supplies
of our product candidates, for use in nonclinical and clinical
studies or commercial scale. As a result, with respect to all
of our product candidates, we rely, and will continue to rely,
completely on CMOs to manufacture API and formulate, hold and
distribute final drug product. The facilities used by our CMOs to
manufacture AV-101, PH94B and PH10 API and AV-101, PH94B and PH10
final drug product are subject to a pre-approval inspection by the
FDA and other comparable foreign regulatory agencies to assess
compliance with applicable regulatory guidelines and requirements,
including cGMPs, and may be required to undergo similar inspections
by the FDA or other comparable foreign regulatory agencies, after
we submit INDs, NDAs or relevant foreign regulatory submission
equivalent to the applicable regulatory agency.
We do not directly control the manufacturing process or the supply
or quality of materials used in the manufacturing and formulation
of our product candidates, and, with respect to all of our product
candidates, we are completely dependent on our CMOs to comply with
all applicable cGMPs for the manufacturing of both API and finished
drug product. If our CMOs cannot secure adequate supplies of
suitable raw materials or successfully manufacture our product
candidates, including AV-101, PH94B and PH10 API and finished drug
product, that conforms to our specifications and the strict
regulatory requirements of the FDA or applicable foreign regulatory
agencies, production of sufficient supplies of our product
candidates, including AV-101, PH94B and PH10 API and finished drug
product, may be delayed and our CMOs may not be able to secure
and/or maintain regulatory approval for their manufacturing
facilities, or the FDA may take other actions, including the
imposition of a clinical hold. In addition, we have no direct
control over our CMOs’ ability to maintain adequate quality
control, quality assurance and qualified personnel. All of our CMOs
are engaged with other companies to supply and/or manufacture
materials or products for such other companies, which exposes our
CMOs to regulatory risks for the production of such materials and
products. As a result, failure to satisfy the regulatory
requirements for the production of those materials and products may
affect the regulatory clearance of our CMO’s facilities
generally or affect the timing of manufacture of AV-101, PH94B and
PH10 for required or planned nonclinical and/or clinical studies.
If the FDA or an applicable foreign regulatory agency determines
now or in the future that our CMOs’ facilities are
noncompliant, we may need to find alternative manufacturing
facilities, which would adversely impact our ability to develop,
obtain regulatory approval for or market our product candidates.
Our reliance on CMOs also exposes us to the possibility that they,
or third parties with access to their facilities, will have access
to and may appropriate our trade secrets or other proprietary
information.
With respect to AV-101, PH94B and PH10, we do not yet have
long-term supply agreements in place with our CMOs and each batch
of AV-101, PH94B and PH10 is or will be individually contracted
under a separate supply agreement. If we engage new CMOs, such
contractors must complete an inspection by the FDA and other
applicable foreign regulatory agencies. We plan to continue to rely
upon CMOs and, potentially, collaboration partners, to manufacture
research and development scale, and, if approved, commercial
quantities of our product candidates. Although we believe our
current scale of API manufacturing for AV-101, and our contemplated
scale of API manufacturing for PH94B and PH10, and the current and
projected supply of AV-101, PH94B and PH10 API and finished drug
product will be adequate to support our planned nonclinical and
clinical studies of AV-101, PH94B and PH10, no assurance can be
given that unanticipated supply shortages or CMO-related delays in
the manufacture and formulation of AV-101, PH94B or PH10 API and/or
finished drug product will not occur in the future.
Additionally, we anticipate that PH94B and PH10 will be considered
drug-device combination products. Third-party manufacturers may not
be able to comply with cGMP requirements applicable to drug/device
combination products, including applicable provisions of the
FDA’s or a comparable foreign regulatory authority’s
drug cGMP regulations, device cGMP requirements embodied in the
Quality System Regulation (
QSR
) or similar regulatory requirements outside the
U.S. Our failure, or the failure of our third-party manufacturers,
to comply with applicable regulations could result in sanctions
being imposed on us, including clinical holds, fines, injunctions,
civil penalties, delays, suspension or withdrawal of approvals,
license revocation, seizures or recalls of product candidates,
operating restrictions and criminal prosecutions, any of which
could significantly affect supplies of our product candidates. The
facilities used by our CMOs to manufacture our product candidates
must be approved by the FDA anf comparable foreign regulatory
authorities pursuant to inspections that will or may be conducted
after we submit our NDA. We do not control the manufacturing
process of, and are completely dependent on, our CMO partners for
compliance with cGMPs and QSRs. If our CMOs cannot successfully
manufacture material that conforms to our specifications and the
strict regulatory requirements of the FDA or other comparable
foreign regulatory authorities, they will not be able to secure
and/or maintain regulatory approval for their manufacturing
facilities. In addition, we have no control over the ability of our
contract manufacturers to maintain adequate quality control,
quality assurance and qualified personnel. If the FDA or a
comparable foreign regulatory authority does not approve these
facilities for the manufacture of our product candidates or if it
withdraws any such approval in the future, we may need to find
alternative manufacturing facilities, which would significantly
impact our ability to develop, obtain regulatory approval for or
market our product candidates, if approved. CMOs may face
manufacturing or quality control problems causing drug substance
production and shipment delays or a situation where the contractor
may not be able to maintain compliance with the applicable cGMP and
QSR requirements. Any failure to comply with cGMP or QSR
requirements or other FDA, EMA and comparable foreign regulatory
requirements could adversely affect our clinical research
activities and our ability to develop our product candidates and
market our products following approval.
Even if we receive marketing approval for AV-101, PH94B, PH10 or
any other product candidate in the U.S., we may never receive
regulatory approval to market AV-101, PH94B, PH10 or any other
product candidate outside of the U.S.
In order to market AV-101, PH94B, PH10 or any other product
candidate outside of the U.S., we must establish and comply with
the numerous and varying safety, efficacy and other regulatory
requirements of other countries. Approval procedures vary among
countries and can involve additional product candidate testing and
additional administrative review periods. The time required to
obtain approvals in other countries might differ from that required
to obtain FDA approval. The marketing approval processes in other
countries may implicate all of the risks detailed above regarding
FDA approval in the U.S. as well as other risks. In particular, in
many countries outside of the U.S., products must receive pricing
and reimbursement approval before the product can be
commercialized. Obtaining this approval can result in substantial
delays in bringing products to market in such countries. Marketing
approval in one country does not ensure marketing approval in
another, but a failure or delay in obtaining marketing approval in
one country may have a negative effect on the regulatory process in
others. Failure to obtain marketing approval in other countries or
any delay or other setback in obtaining such approval would impair
our ability to market our product candidates in such foreign
markets. Any such impairment would reduce the size of our potential
market, which could have a material adverse impact on our business,
results of operations and prospects.
If any of our product candidates are ultimately regulated as
controlled substances, we, our CMOs, as well as future
distributors, prescribers, and dispensers will be required to
comply with additional regulatory requirements which could delay
the marketing of our product candidates, and increase the cost and
burden of manufacturing, distributing, dispensing, and prescribing
our product candidates.
Before we can commercialize our product candidates in the U.S. or
any market outside the U.S., the U.S. Drug Enforcement
Administration (
DEA
) or its foreign counterpart may need to determine
whether such product candidates will be considered to be a
controlled substance, taking into account the recommendation of the
FDA or its foreign counterpart, as the case may be. This may be
a lengthy process that could delay our marketing of a product
candidate and could potentially diminish any regulatory exclusivity
periods for which we may be eligible, which would increase the cost
associated with commercializing such products and, in turn, may
have an adverse impact on our results of operations. Although we
currently do not know whether the DEA or any foreign counterpart
will consider any of our current or future product candidate to be
controlled substances, we cannot yet give any assurance that such
product candidates, including AV-101, PH94B and PH10 will not be
regulated as controlled substances.
If any of our product candidates are regulated as controlled
substances, depending on the DEA controlled substance schedule in
which the product candidates are placed or that of its foreign
counterpart, we, our CMOs, and any future distributers,
prescribers, and dispensers of the scheduled product candidates may
be subject to significant regulatory requirements, such as
registration, security, recordkeeping, reporting, storage,
distribution, importation, exportation, inventory, quota and other
requirements administered by the DEA or a foreign counterpart of
the DEA as the case may be. Moreover, if any of our product
candidates are regulated as controlled substances, we and our CMOs
would be subject to initial and periodic DEA inspection. If we or
our CMOs are not able to obtain or maintain any necessary DEA
registrations or comparable foreign registrations, we may not be
able to commercialize any product candidates that are deemed to be
controlled substances or we may need to find alternative CMOs,
which would take time and cause us to incur additional costs,
delaying or limit our commercialization efforts.
Because of their restrictive nature, these laws and regulations
could limit commercialization of our product candidates, should
they be deemed to contain controlled substances. Failure to comply
with the applicable controlled substance laws and regulations can
also result in administrative, civil or criminal enforcement. The
DEA or its foreign counterparts may seek civil penalties, refuse to
renew necessary registrations, or initiate administrative
proceedings to revoke those registrations. In some circumstances,
violations could result in criminal proceedings or consent decrees.
Individual states also independently regulate controlled
substances.
If we are unable to establish sales and marketing capabilities or
enter into agreements with third parties to market and sell our
product candidates, we may not be able to generate any
revenue.
We do not currently have any internal resources for the sale,
marketing and distribution of pharmaceutical products, and we may
not create such internal capabilities in the foreseeable future.
Therefore, to market our product candidates, if approved by the FDA
or any other regulatory body, we must make contractual arrangements
with third parties to perform services related to sales, marketing,
managerial and other non-technical capabilities relating to the
commercialization of our product candidates, or establish those
capabilities prior to market approval. If we are unable to
establish adequate contractual arrangements for such sales,
marketing and distribution capabilities, or if we are unable to do
so on commercially reasonable terms, or if we are unable to
establish such capabilities on our own, our business, results of
operations, financial condition and prospects will be materially
adversely affected.
Even if we receive marketing approval for our product candidates,
our product candidates may not achieve broad market acceptance,
which would limit the revenue that we generate from their
sales.
The commercial success of our product candidates, if approved by
the FDA or other applicable regulatory authorities, will depend
upon the awareness and acceptance of our product candidates among
the medical community, including physicians, patients and
healthcare payors. Market acceptance of our product candidates, if
approved, will depend on a number of factors, including, among
others:
●
the
efficacy and safety of our product candidates as demonstrated in
clinical trials, and, if required by any applicable regulatory
authority in connection with the approval for the applicable
indications, to provide patients with incremental health benefits,
as compared with other available therapies;
●
limitations
or warnings contained in the labeling approved for our product
candidates by the FDA or other applicable regulatory
authorities;
●
the
clinical indications for which our product candidates are
approved;
●
availability
of alternative treatments already approved or expected to be
commercially launched in the near future;
●
the
potential and perceived advantages of our product candidates over
current treatment options or alternative treatments, including
future alternative treatments;
●
the
willingness of the target patient population to try new therapies
and of physicians to prescribe these therapies;
●
the
strength of marketing and distribution support and timing of market
introduction of competitive products;
●
publicity
concerning our products or competing products and
treatments;
●
pricing
and cost effectiveness;
●
the
effectiveness of our sales and marketing strategies;
●
our
ability to increase awareness of our product candidates through
marketing efforts;
●
our
ability to obtain sufficient third-party coverage or reimbursement;
or
●
the
willingness of patients to pay out-of-pocket in the absence of
third-party coverage.
If our product candidates are approved but do not achieve an
adequate level of acceptance by patients, physicians and payors, we
may not generate sufficient revenue from our product candidates to
become or remain profitable. Before granting reimbursement
approval, healthcare payors may require us to demonstrate that our
product candidates, in addition to treating these target
indications, also provide incremental health benefits to patients.
Our efforts to educate the medical community and third-party payors
about the benefits of our product candidates may require
significant resources and may never be successful.
Our product candidates may cause undesirable safety concerns and
side effects that could delay or prevent their regulatory approval,
limit the commercial profile of an approved label, or result in
significant negative consequences following marketing approval, if
any.
Undesirable safety concerns and side effects caused by our product
candidates could cause us or regulatory authorities to interrupt,
delay or halt nonclinical studies and clinical trials and could
result in a more restrictive label or the delay or denial of
regulatory approval by the FDA or other regulatory
authorities.
Further, clinical trials by their nature utilize a sample of
potential patient populations. With a limited number of patients
and limited duration of exposure, rare and severe side effects of
our product candidates may only be uncovered with a significantly
larger number of patients exposed to the product candidate. If our
product candidates receive marketing approval and we or others
identify undesirable safety concerns or side effects caused by such
product candidates (or any other similar products) after such
approval, a number of potentially significant negative consequences
could result, including:
●
regulatory
authorities may withdraw or limit their approval of such product
candidates;
●
regulatory
authorities may require the addition of labeling statements, such
as a “black box” warning or a
contraindication;
●
we
may be required to change the way such product candidates are
distributed or administered, conduct additional clinical trials or
change the labeling of the product candidates;
●
we
may be subject to regulatory investigations and government
enforcement actions;
●
we
may decide to remove such product candidates from the
marketplace;
●
we
could be sued and held liable for injury caused to individuals
exposed to or taking our product candidates; and
●
our
reputation may suffer.
We believe that any of these events could prevent us from achieving
or maintaining market acceptance of the affected product candidates
and would substantially increase the costs of commercializing our
product candidates and significantly impact our ability to
successfully commercialize our product candidates and generate
revenues.
Even if we receive marketing approval for our product candidates,
we may still face future development and regulatory
difficulties.
Even if we receive marketing approval for our product candidates,
regulatory authorities may still impose significant restrictions on
our product candidates, indicated uses or marketing or impose
ongoing requirements for potentially costly post-approval studies.
Our product candidates will also be subject to ongoing regulatory
requirements governing the labeling, packaging, storage and
promotion of the product and record keeping and submission of
safety and other post-market information. The FDA and other
regulatory authorities have significant post-marketing authority,
including, for example, the authority to require labeling changes
based on new safety information and to require post-marketing
studies or clinical trials to evaluate serious safety risks related
to the use of a drug. The FDA and other regulatory authorities also
have the authority to require, as part of an NDA or post-approval,
the submission of a REMS or comparable safety program. Any REMS or
comparable safety program required by the FDA or other regulatory
authority may lead to increased costs to assure compliance with new
post-approval regulatory requirements and potential requirements or
restrictions on the sale of approved products, all of which could
lead to lower sales volume and revenue.
Manufacturers of drug and device products and their facilities are
subject to continual review and periodic inspections by the FDA and
other regulatory authorities for compliance with cGMPs and other
regulations. If we or a regulatory agency discover problems with
our product candidates, such as adverse events of unanticipated
severity or frequency, or problems with the facility where our
product candidates are manufactured, a regulatory agency may impose
restrictions on our product candidates, the manufacturer or us,
including requiring withdrawal of our product candidates from the
market or suspension of manufacturing. If we, our product
candidates, or the manufacturing facilities for our product
candidates fail to comply with applicable regulatory requirements,
a regulatory agency may, among other things:
●
issue
warning letters or untitled letters;
●
seek
an injunction or impose civil or criminal penalties or monetary
fines;
●
suspend
or withdraw marketing approval;
●
suspend
any ongoing clinical trials;
●
refuse
to approve pending applications or supplements to applications
submitted by us;
●
suspend
or impose restrictions on operations, including costly new
manufacturing requirements; or
●
seize
or detain products, refuse to permit the import or export of
products, or require that we initiate a product
recall.
Competing therapies could emerge adversely affecting our
opportunity to generate revenue from the sale of our product
candidates.
The pharmaceutical industry is highly competitive. There are many
public and private pharmaceutical companies, universities,
governmental agencies and other research organizations actively
engaged in the research and development of product candidates that
may be similar to and compete with our product candidates or
address similar markets. It is probable that the number of
companies seeking to develop product candidates similar to and
competitive with our product candidates will increase.
Currently, management is unaware of any FDA-approved oral
adjunctive therapy for MDD patients with an inadequate response to
standard antidepressants having the same mechanism of
pharmacological action and safety profile as our
orally-administered AV-101 or our intranasally-administered PH10.
However, new antidepressant products with other mechanisms of
pharmacological action or products approved for other indications,
including the FDA-approved anesthetic ketamine hydrochloride
administered intravenously, are being or may be used off-label for
treatment of MDD, as well as other CNS indications for which AV-101
or PH10 may have therapeutic potential. Additionally, other
non-pharmaceutical treatment options, such psychotherapy and
electroconvulsive therapy (
ECT
) are used before or instead of standard
antidepressant medications to treat patients with MDD. Management
is also unaware of any FDA-approved rapid-onset, on-demand
treatment for SAD having the same mechanism of pharmacological
action and safety profile as our PH94B.
In the field of new generation, oral adjunctive treatments for
adult patients with MDD with an inadequate response to standard
FDA-approved ADs, we believe our principal competitors may be
Axsome’s AX-05, Alkermes’ ALKS-5461, Allergan’s
AGN-241751 and Sage’s Sage-217. Additional potential
competitors may include, but not be limited to, academic and
private commercial clinics providing intravenous ketamine therapy
on an off-label basis and Janssen’s intranasally-administered
Spravato (esketamine). With respect to PH94B and current
FDA-approved treatment options for SAD in the U.S., our competition
may include, but is not limited to, certain current generic ADs
approved by the FDA for treatment of SAD and certain classes of
drugs used on an off-label basis for treatment of SAD, including
benzodiazepines such as alprazolam, and beta blockers such as
propranolol.
Many of our potential competitors, alone or with their strategic
partners, have substantially greater financial, technical and human
resources than we do and significantly greater experience in the
discovery, and development of product candidates, obtaining FDA and
other regulatory approvals of treatments and the commercialization
of those treatments. With respect to AV-101 and PH10, we
believe that a range of pharmaceutical and biotechnology companies
have programs to develop drug candidates for the treatment of
depression, including MDD, Parkinson’s disease
levodopa-induced dyskinesia, neuropathic pain, epilepsy, and other
neurological conditions and diseases, including, but not limited
to, Abbott Laboratories, Acadia, Allergan, Alkermes, Aptynix,
AstraZeneca, Eli Lilly, GlaxoSmithKline, IntraCellular, Janssen,
Lundbeck, Merck, Novartis, Ono, Otsuka, Pfizer, Roche, Sage,
Sumitomo Dainippon, and Takeda, as well as any affiliates of the
foregoing companies. With respect to PH94B, in addition
to potential competition from certain current FDA-approved
antidepressants and off-label use of benzodiazepines and beta
blockers, we believe additional drug candidates in development for
SAD may include, but potentially not be limited to, an oral fatty
acid amide hydrolase inhibitor in development by Janssen and a
sublingual formulation of the sodium channel blocker riluzole in
development by Biohaven. Mergers and acquisitions in the
biotechnology and pharmaceutical industries may result in even more
resources being concentrated among a smaller number of our
competitors. Our commercial opportunity could be reduced or
eliminated if our competitors develop and commercialize products
that are safer, more effective, have fewer or less severe side
effects, are more convenient or are less expensive than any
products that we may develop. Our competitors also may obtain FDA
or other regulatory approval for their products more rapidly than
we may obtain approval for ours, which could result in our
competitors establishing a strong market position before we are
able to enter the market.
We may seek to establish collaborations, and, if we are not able to
establish them on commercially reasonable terms, we may have to
alter our development and commercialization plans.
Our drug development programs and the potential commercialization
of our product candidates will require substantial additional cash
to fund expenses. For some of our product candidates, we may decide
to collaborate with pharmaceutical and biotechnology companies for
the development and potential commercialization of those product
candidates.
We face significant competition in seeking appropriate
collaborators. Whether we reach a definitive agreement for
collaboration will depend, among other things, upon our assessment
of the collaborator’s resources and expertise, the terms and
conditions of the proposed collaboration and the proposed
collaborator’s evaluation of a number of factors. Those
factors may include the design or results of nonclinical and
clinical trials, the likelihood of approval by the FDA or similar
regulatory authorities outside the United States, the potential
markets for the subject product candidate, the costs and
complexities of manufacturing and delivering such product candidate
to patients, the potential of competing products, the existence of
uncertainty with respect to our ownership of technology, which can
exist if there is a challenge to such ownership without regard to
the merits of the challenge and industry and market conditions
generally. The collaborator may also consider alternative product
candidates or technologies for similar indications that may be
available to collaborate on and whether such collaboration could be
more attractive than the one with us for our product candidate. The
terms of any collaboration or other arrangements that we may
establish may not be favorable to us.
We may also be restricted under existing collaboration agreements
from entering into future agreements on certain terms with
potential collaborators. Collaborations are complex and
time-consuming to negotiate and document. In addition, there have
been a significant number of recent business combinations among
large pharmaceutical companies that have resulted in a reduced
number of potential future collaborators.
We may not be able to negotiate collaborations on a timely basis,
on acceptable terms, or at all. If we are unable to do so, we may
have to curtail the development of the product candidate for which
we are seeking to collaborate, reduce or delay its development
program or one or more of our other development programs, delay its
potential commercialization or reduce the scope of any sales or
marketing activities, or increase our expenditures and undertake
development or commercialization activities at our own expense. If
we elect to increase our expenditures to fund development or
commercialization activities on our own, we may need to obtain
additional capital, which may not be available to us on acceptable
terms or at all. If we do not have sufficient funds, we may not be
able to further develop our product candidates or bring them to
market and generate product revenue.
In addition, any future collaboration that we enter into may not be
successful. The success of our collaboration arrangements will
depend heavily on the efforts and activities of our collaborators.
Collaborators generally have significant discretion in determining
the efforts and resources that they will apply to these
collaborations. Disagreements between parties to a collaboration
arrangement regarding clinical development and commercialization
matters can lead to delays in the development process or
commercializing the applicable product candidate and, in some
cases, termination of the collaboration arrangement. These
disagreements can be difficult to resolve if neither of the parties
has final decision-making authority. Collaborations with
pharmaceutical or biotechnology companies and other third parties
often are terminated or allowed to expire by the other party. Any
such termination or expiration would adversely affect us
financially and could harm our business reputation.
We may not be successful in our efforts to identify or discover
additional product candidates, or we may expend our limited
resources to pursue a particular product candidate or indication
and fail to capitalize on product candidates or indications that
may be more profitable or for which there is a greater likelihood
of success.
The success of our business depends primarily upon our ability to
identify, develop and commercialize product candidates with
commercial and therapeutic potential. Although AV-101 is in Phase 2
clinical development for treatment of MDD, and we are planning for
Phase 2a studies of AV-101 for treatment of NP and LID, for Phase 3
development of PH94B for on-demand treatment of SAD, and a Phase 2b
study of PH10 for treatment of MDD, we may fail to pursue
additional development opportunities for AV-101, PH94B or PH10, or
identify additional product candidates for clinical development for
a number of reasons. Our research methodology may be unsuccessful
in identifying new product candidates or our product candidates may
be shown to have harmful side effects or may have other
characteristics that may make the products unmarketable or unlikely
to receive marketing approval.
Because we currently have limited financial and management
resources, we necessarily focus on a limited number of research and
development programs and product candidates and are currently
focused primarily on development of AV-101, PH94B and PH10, with
additional limited focus on NCE DR and, through a third-party
collaboration, RM. As a result, we may forego or delay pursuit of
opportunities with other product candidates or for other potential
CNS-related indications for AV-101, PH94B and/or PH10 that later
prove to have greater commercial potential. Our resource allocation
decisions may cause us to fail to capitalize on viable commercial
drugs or profitable market opportunities. Our spending on current
and future research and development programs and product candidates
for specific indications may not yield any commercially viable
drugs. If we do not accurately evaluate the commercial potential or
target market for a particular product candidate, we may relinquish
valuable rights to that product candidate through future
collaboration, licensing or other royalty arrangements in cases in
which it would have been more advantageous for us to retain sole
development and commercialization rights to such product
candidate.
If any of these events occur, we may be forced to abandon our
development efforts for a program or programs, which would have a
material adverse effect on our business and could potentially cause
us to cease operations. Research and development programs to
identify and advance new product candidates require substantial
technical, financial and human resources. We may focus our efforts
and resources on potential programs or product candidates that
ultimately prove to be unsuccessful.
We are subject to healthcare laws and regulations, which could
expose us to criminal sanctions, civil penalties, contractual
damages, reputational harm and diminished profits and future
earnings.
Although we do not currently have any products on the market, once
we begin commercializing our product candidates, we may be subject
to additional healthcare statutory and regulatory requirements and
enforcement by the federal government and the states and foreign
governments in which we conduct our business. Healthcare providers,
physicians and others will play a primary role in the
recommendation and prescription of our product candidates, if
approved. Our future arrangements with third-party payors will
expose us to broadly applicable fraud and abuse and other
healthcare laws and regulations that may constrain the business or
financial arrangements and relationships through which we market,
sell and distribute our product candidates, if we obtain marketing
approval. Restrictions under applicable federal and state
healthcare laws and regulations include the following:
●
The
federal anti-kickback statute prohibits, among other things,
persons from knowingly and willfully soliciting, offering,
receiving or providing remuneration, directly or indirectly, in
cash or in kind, to induce or reward either the referral of an
individual for, or the purchase, order or recommendation of, any
good or service, for which payment may be made under federal
healthcare programs such as Medicare and Medicaid.
●
The
federal False Claims Act imposes criminal and civil penalties,
including those from civil whistleblower or qui tam actions,
against individuals or entities for knowingly presenting, or
causing to be presented, to the federal government, claims for
payment that are false or fraudulent or making a false statement to
avoid, decrease, or conceal an obligation to pay money to the
federal government.
●
The
federal Health Insurance Portability and Accountability Act of
1996, as amended by the Health Information Technology for Economic
and Clinical Health Act, imposes criminal and civil liability for
executing a scheme to defraud any healthcare benefit program and
also imposes obligations, including mandatory contractual terms,
with respect to safeguarding the privacy, security and transmission
of individually identifiable health information.
●
The
federal false statements statute prohibits knowingly and willfully
falsifying, concealing or covering up a material fact or making any
materially false statement in connection with the delivery of or
payment for healthcare benefits, items or services.
●
The
federal transparency requirements, sometimes referred to as the
“Sunshine Act,” under the Patient Protection and
Affordable Care Act, require manufacturers of drugs, devices,
biologics and medical supplies that are reimbursable under
Medicare, Medicaid, or the Children’s Health Insurance
Program to report to the Department of Health and Human Services
information related to physician payments and other transfers of
value and physician ownership and investment
interests.
●
Analogous
state laws and regulations, such as state anti-kickback and false
claims laws and transparency laws, may apply to sales or marketing
arrangements and claims involving healthcare items or services
reimbursed by non-governmental third-party payors, including
private insurers, and some state laws require pharmaceutical
companies to comply with the pharmaceutical industry’s
voluntary compliance guidelines and the relevant
compliance.
●
Guidance
promulgated by the federal government in addition to requiring drug
manufacturers to report information related to payments to
physicians and other healthcare providers or marketing expenditures
and drug pricing.
●
Foreign
Corrupt Practices Act and its application to marketing and selling
practices as well as to clinical trials.
Ensuring that our future business arrangements with third parties
comply with applicable healthcare laws and regulations could be
costly. It is possible that governmental authorities will conclude
that our business practices do not comply with current or future
statutes, regulations or case law involving applicable fraud and
abuse or other healthcare laws and regulations. If our operations
were found to be in violation of any of these laws or any other
governmental regulations that may apply to us, we may be subject to
significant civil, criminal and administrative penalties, damages,
fines and exclusion from government funded healthcare programs,
such as Medicare and Medicaid, any of which could substantially
disrupt our operations. If any of the physicians or other providers
or entities with whom we expect to do business are found to be out
of compliance with applicable laws, they may be subject to
criminal, civil or administrative sanctions, including exclusions
from government funded healthcare programs.
The FDA and other regulatory agencies actively enforce the laws and
regulations prohibiting the promotion of off-label uses. If we are
found to have improperly promoted off-label uses, we may become
subject to significant liability.
The FDA and other regulatory agencies strictly regulate the
promotional claims that may be made about prescription products,
such as AV-101, PH94B and PH10, if approved. In particular, a
product may not be promoted for uses that are not approved by the
FDA or such other regulatory agencies as reflected in the
product’s approved labeling. For example, if we receive FDA
marketing approval for AV-101 as an adjunctive treatment of MDD,
physicians may prescribe AV-101 to their patients in a manner that
is inconsistent with the FDA-approved label. However, if we are
found to have promoted such off-label uses, we may become subject
to significant liability. The federal government has levied large
civil and criminal fines against companies for alleged improper
off-label promotion and has enjoined several companies from
engaging in off-label promotion. The FDA has also requested that
companies enter into consent decrees or imposed permanent
injunctions under which specified promotional conduct is changed or
curtailed. If we cannot successfully manage the promotion of our
product candidates, if approved, we could become subject to
significant liability, which would materially adversely affect our
business and financial condition.
Even if approved, reimbursement policies could limit our ability to
sell our product candidates.
Market acceptance and sales of our product candidates will depend
heavily on reimbursement policies and may be affected by healthcare
reform measures. Government authorities and third-party payors,
such as private health insurers and health maintenance
organizations, decide which medications they will pay for and
establish reimbursement levels for those medications. Cost
containment is a primary concern in the United States healthcare
industry and elsewhere. Government authorities and these
third-party payors have attempted to control costs by limiting
coverage and the amount of reimbursement for particular
medications. We cannot be sure that reimbursement will be available
for our product candidates and, if reimbursement is available, the
level of such reimbursement. Reimbursement may impact the demand
for, or the price of, our product candidates. If reimbursement is
not available or is available only at limited levels, we may not be
able to successfully commercialize our product
candidates.
In some foreign countries, particularly in Canada and European
countries, the pricing of prescription pharmaceuticals is subject
to strict governmental control. In these countries, pricing
negotiations with governmental authorities can take six months or
longer after the receipt of regulatory approval and product launch.
To obtain favorable reimbursement for the indications sought or
pricing approval in some countries, we may be required to conduct a
clinical trial that compares the cost-effectiveness of our product
candidates with other available therapies. If reimbursement for our
product candidates is unavailable in any country in which we seek
reimbursement, if it is limited in scope or amount, if it is
conditioned upon our completion of additional clinical trials, or
if pricing is set at unsatisfactory levels, our operating results
could be materially adversely affected.
We may seek FDA Orphan Drug designation for one or more of our
product candidates. Even if we have obtained FDA Orphan Drug
designation for a product candidate, there may be limits to the
regulatory exclusivity afforded by such designation.
We may, in the future, choose to seek FDA Orphan Drug designation
for one or more of our current or future product candidates. Even
if we obtain Orphan Drug designation from the FDA for a product
candidate, there are limitations to the exclusivity afforded by
such designation. In the U.S., the company that first obtains FDA
approval for a designated orphan drug for the specified rare
disease or condition receives orphan drug marketing exclusivity for
that drug for a period of seven years. This orphan drug exclusivity
prevents the FDA from approving another application, including a
full NDA to market the same drug for the same orphan indication,
except in very limited circumstances, including when the FDA
concludes that the later drug is safer, more effective or makes a
major contribution to patient care. For purposes of small molecule
drugs, the FDA defines “same drug” as a drug that
contains the same active moiety and is intended for the same use as
the drug in question. To obtain Orphan Drug status for a drug that
shares the same active moiety as an already approved drug, it must
be demonstrated to the FDA that the drug is safer or more effective
than the approved orphan designated drug, or that it makes a major
contribution to patient care. In addition, a designated orphan drug
may not receive orphan drug exclusivity if it is approved for a use
that is broader than the indication for which it received orphan
designation. In addition, orphan drug exclusive marketing rights in
the U.S. may be lost if the FDA later determines that the request
for designation was materially defective or if the manufacturer is
unable to assure sufficient quantity of the drug to meet the needs
of patients with the rare disease or condition or if another drug
with the same active moiety is determined to be safer, more
effective, or represents a major contribution to patient
care.
Our future growth may depend, in part, on our ability to penetrate
foreign markets, where we would be subject to additional regulatory
burdens and other risks and uncertainties.
Our future profitability may depend, in part, on our ability to
commercialize our product candidates in foreign markets for which
we may rely on collaboration with third parties. If we
commercialize our product candidates in foreign markets, we would
be subject to additional risks and uncertainties,
including:
●
our
customers’ ability to obtain reimbursement for our product
candidates in foreign markets;
●
our
inability to directly control commercial activities because we are
relying on third parties;
●
the
burden of complying with complex and changing foreign regulatory,
tax, accounting and legal requirements;
●
different
medical practices and customs in foreign countries affecting
acceptance in the marketplace;
●
import
or export licensing requirements;
●
longer
accounts receivable collection times;
●
longer
lead times for shipping;
●
language
barriers for technical training;
●
reduced
protection of intellectual property rights, different standards of
patentability and different availability of prior art in some
foreign countries as compared with the U.S.;
●
the
existence of additional potentially relevant third party
intellectual property rights;
●
foreign
currency exchange rate fluctuations; and
●
the
interpretation of contractual provisions governed by foreign laws
in the event of a contract dispute.
Foreign sales of our product candidates could also be adversely
affected by the imposition of governmental controls, political and
economic instability, trade restrictions and changes in
tariffs.
We are a development stage biopharmaceutical company with no
current revenues or approved products, and limited experience
developing new therapeutic product candidates, including conducting
clinical trials and other areas required for the successful
development and commercialization of therapeutic products, which
makes it difficult to assess our future viability.
We are a development stage biopharmaceutical company. Although we
have one drug candidate in Phase 2 development and are preparing to
advance another drug candidate into Phase 2 development and a third
drug candidate into pivotal Phase 3 clinical trials, we currently
have no approved products and currently generate no revenues, and
we have not yet fully demonstrated an ability to overcome many of
the fundamental risks and uncertainties frequently encountered by
development stage companies in new and rapidly evolving fields of
technology, particularly biotechnology. To execute our business
plan successfully, we will need to accomplish the following
fundamental objectives, either on our own or with
collaborators:
●
develop
and obtain required regulatory approvals for commercialization of
AV-101, PH94B, PH10 and/or other product candidates;
●
maintain,
leverage and expand our intellectual property
portfolio;
●
establish
and maintain sales, distribution and marketing capabilities, and/or
enter into strategic partnering arrangements to access such
capabilities;
●
gain
market acceptance for our product candidates; and
●
obtain
adequate capital resources and manage our spending as costs and
expenses increase due to research, production, development,
regulatory approval and commercialization of product
candidates.
Our future success is highly dependent upon our ability to
successfully develop and commercialize any of our current product
candidates, acquire or license additional product candidates, or
discover, as well as produce, develop and commercialize proprietary
DR NCEs using our stem cell technology, and we cannot provide any
assurance that we will successfully develop and commercialize
AV-101, PH94B, PH10 or acquire or license additional product
candidates or discover and develop DR NCEs, or that, if produced,
AV-101, PH94B, PH10 or any other product candidate will be
successfully commercialized.
Business development and research and development programs designed
to identify, acquire or license additional product candidates, or,
as the case may be, produce DR NCEs require substantial technical,
financial and human resources, whether or not any additional
product candidate is acquired or licensed or NCEs are ultimately
identified and produced.
In addition, we do not have a sales or marketing infrastructure,
and we, including our executive officers, do not have any
significant pharmaceutical sales, marketing or distribution
experience. We may seek to collaborate with others to develop and
commercialize AV-101, PH94B, PH10, drug rescue NCEs and/or other
product candidates if and when they are acquired and developed, or
we may seek to establish those commercial capabilities
ourselves. If we enter into arrangements with third
parties to perform sales, marketing and distribution services for
our products, the resulting revenues or the profitability from
these revenues to us are likely to be lower than if we had sold,
marketed and distributed our products ourselves. In addition, we
may not be successful entering into arrangements with third parties
to sell, market and distribute AV-101, PH94B, PH10, any drug rescue
NCEs or other product candidates or may be unable to do so on terms
that are favorable to us. We likely will have little
control over such third parties, and any of these third parties may
fail to devote the necessary resources and attention to sell,
market and distribute our products effectively. If we do
not establish sales, marketing and distribution capabilities
successfully, either on our own or in collaboration with third
parties, we will not be successful in commercializing our product
candidates.
We have limited operating history with respect to drug development,
including our anticipated focus on the identification and
acquisition of additional product candidates or the assessment of
potential DR NCEs and no operating history with respect to the
production of DR NCEs, and we may never be able to produce a DR
NCE.
If we are unable to develop and commercialize AV-101, PH94B,
PH10 or acquire or license additional product candidates, or
produce suitable DR NCEs, we may not be able to generate sufficient
revenues to execute our business plan, which likely would result in
significant harm to our financial position and results of
operations, which could adversely impact our stock
price.
With respect to DR, there are a number of factors, in addition to
the utility of
CardioSafe
3D, that may impact our ability to identify
and produce, develop or out-license and commercialize DR NCEs,
independently or with partners, including:
●
our
ability to identify potential DR candidates in the public domain,
obtain sufficient quantities of them, and assess them using our
bioassay systems;
●
if
we seek to rescue DR candidates that are not available to us in the
public domain, the extent to which third parties may be willing to
out-license or sell certain DR candidates to us on commercially
reasonable terms;
●
our medicinal chemistry collaborator’s
ability to design and produce proprietary DR NCEs based on the
novel biology and structure-function insight we provide
using
CardioSafe
3D; and
●
financial
resources available to us to develop and commercialize lead DR NCEs
internally, or, if we sell or out-license them to partners, the
resources such partners choose to dedicate to development and
commercialization of any DR NCEs they acquire or license from
us.
Even if we do acquire additional product candidates or produce
proprietary DR NCEs, we can give no assurance that we will be able
to develop and commercialize them as marketable drugs, on our own
or in collaboration with others. Before we generate any revenues
from AV-101, PH94B, PH10 or additional acquired or licensed
products candidates or any DR NCEs, we or our potential
collaborators must complete preclinical and clinical development
programs, submit clinical and manufacturing data to the FDA,
qualify a third party CMO, receive regulatory approval in one or
more jurisdictions, satisfy the FDA that our CMO is capable of
manufacturing the product in compliance with cGMP, build a
commercial organization, make substantial investments and undertake
significant marketing efforts ourselves or in partnership with
others. We are not permitted to market or promote any of our
product candidates before we receive regulatory approval from the
FDA or comparable foreign regulatory authorities, and we may never
receive such regulatory approval for any of our product
candidates.
If
CardioSafe
3D
fails to predict accurately
and efficiently the cardiac effects, both toxic and nontoxic, of DR
candidates and DR NCEs, then our DR programs will be adversely
affected.
Success of our subsidiary, VistaStem, is partly dependent on our
ability to use
CardioSafe
3D to identify and predict, accurately and
efficiently, the potential toxic and nontoxic cardiac effects of DR
candidates
and DR NCEs. If
CardioSafe
3D is not capable of providing
physiologically relevant and clinically predictive information
regarding human cardiac biology, our DR business will be adversely
affected.
CardioSafe
3D
may not be meaningfully more
predictive of the behavior of human cells than existing
methods.
DR drug rescue programs is highly dependent
upon
CardioSafe
3D being more accurate, efficient and
clinically predictive than long-established surrogate safety
models, including animal cells and live animals, and immortalized,
primary and transformed cells, currently used by pharmaceutical
companies and others. We cannot give assurance
that
CardioSafe
3D will be more efficient or accurate at
predicting the heart safety of new drug candidates than the testing
models currently used. If
CardioSafe
3D fails to provide a meaningful difference
compared to existing or new models in predicting the behavior of
human heart, respectively, their utility for DR will be limited and
our DR business will be adversely affected.
We may invest in producing DR NCEs for which there proves to be no
demand.
To generate revenue from our DR activities, we must produce
proprietary DR NCEs for which there proves to be demand within the
healthcare marketplace, and, if we intend to out-license a
particular DR NCE for development and commercialization prior to
market approval, then also among pharmaceutical companies and other
potential collaborators. However, we may produce DR NCEs for which
there proves to be no or limited demand in the healthcare market
and/or among pharmaceutical companies and others. If we
misinterpret market conditions, underestimate development costs
and/or seek to rescue the wrong DR candidates, we may fail to
generate sufficient revenue or other value, on our own or in
collaboration with others, to justify our investments, and our DR
business may be adversely affected.
We may experience difficulty in producing human cells and our
future stem cell technology research and development efforts may
not be successful within the timeline anticipated, if at
all.
Our hPSC technology is technically complex, and the time and
resources necessary to develop various human cell types and
customized bioassay systems, although not significant at present,
are difficult to predict in advance. We might decide to devote
significant additional personnel and financial resources to
research and development activities designed to expand, in the case
of DR, and explore, in the case of drug discovery and RM, potential
applications of our stem cell technology platform. In particular,
we may conduct exploratory nonclinical RM programs involving blood,
bone, cartilage, and/or liver cells. Although we and our
third-party collaborators have developed proprietary protocols to
produce multiple differentiated cell types, we could encounter
difficulties in differentiating and producing sufficient quantities
of particular cell types, even when following these proprietary
protocols. These difficulties could result in delays in production
of certain cells, assessment of certain DR candidates and DR NCEs,
design and development of certain human cellular assays and
performance of certain exploratory nonclinical RM studies. In the
past, our stem cell research and development projects have been
significantly delayed when we encountered unanticipated
difficulties in differentiating hPSCs into heart and liver cells.
Although we have overcome such difficulties in the past, we may
have similar delays in the future, and we may not be able to
overcome them or obtain any benefits from our future stem cell
technology research and development activities. Any delay or
failure by us, for example, to produce functional, mature blood,
bone, cartilage, and liver cells could have a substantial and
material adverse effect on our potential drug discovery, DR and RM
business opportunities and results of operations.
Restrictions on research and development involving human embryonic
stem cells and religious and political pressure regarding such stem
cell research and development could impair our ability to conduct
or sponsor certain potential collaborative research and development
programs and adversely affect our prospects, the market price of
our common stock and our business model.
Some of our research and development programs may involve the use
of human cells derived from our controlled differentiation of human
embryonic stem cells (
hESC
s). Some believe the use of hESCs gives rise to
ethical and social issues regarding the appropriate use of these
cells. Our research related to differentiation of hESCs may become
the subject of adverse commentary or publicity, which could
significantly harm the market price of our common stock. Although
now substantially less than in years past, certain political and
religious groups in the U.S. and elsewhere voice opposition to hESC
technology and practices. We may use hESCs derived from excess
fertilized eggs that have been created for clinical use
in
in
vitro
fertilization
(
IVF
) procedures and have been donated for research
purposes with the informed consent of the donors after a successful
IVF procedure because they are no longer desired or suitable for
IVF. Certain academic research institutions have adopted policies
regarding the ethical use of human embryonic tissue. These policies
may have the effect of limiting the scope of future collaborative
research opportunities with such institutions, thereby potentially
impairing our ability to conduct certain research and development
in this field that we believe is necessary to expand the DR
capabilities of our technology, which would have a material adverse
effect on our business.
The use of embryonic or fetal tissue in research (including the
derivation of hESCs) in other countries is regulated by the
government, and such regulation varies widely from country to
country. Government-imposed restrictions with respect to use of
hESCs in research and development could have a material adverse
effect on us by harming our ability to establish critical
collaborations, delaying or preventing progress in our research and
development, and causing a decrease in the market interest in our
stock.
The foregoing potential ethical concerns do not apply to our use of
induced pluripotent stem cells
(iPSC
s) because their derivation does not involve the
use of embryonic tissues.
We have assumed that the biological capabilities of iPSCs and hESCs
are likely to be comparable. If it is discovered that this
assumption is incorrect, our exploratory research and development
activities focused on potential regenerative medicine applications
of our stem cell technology platform could be harmed.
We may use both hESCs and iPSCs to produce human cells for our
customized
in vitro
assays for drug discovery and drug rescue
purposes. However, we anticipate that our future exploratory
research and development, if any, focused on potential regenerative
medicine applications of our stem cell technology platform
primarily will involve iPSCs. With respect to iPSCs, we believe
scientists are still somewhat uncertain about the clinical utility,
life span, and safety of such cells, and whether such cells differ
in any clinically significant ways from hESCs. If we discover that
iPSCs will not be useful for whatever reason for potential
regenerative medicine programs, this would negatively affect our
ability to explore expansion of our platform in that manner,
including, in particular, where it would be preferable to use iPSCs
to reproduce rather than approximate the effects of certain
specific genetic variations.
If we fail to comply with environmental, health and safety laws and
regulations, we could become subject to fines or penalties or incur
costs that could have a material adverse effect on the success of
our business.
We are subject to numerous environmental, health and safety laws
and regulations, including those governing laboratory procedures
and the handling, use, storage, treatment and disposal of hazardous
materials and wastes. Our operations involve the use of hazardous
and flammable materials, including chemicals and biological
materials. Our operations also produce hazardous waste products. We
generally contract with third parties for the disposal of these
materials and wastes. We cannot eliminate the risk of contamination
or injury from these materials. In the event of contamination or
injury resulting from our use of hazardous materials, we could be
held liable for any resulting damages, and any liability could
exceed our resources. We also could incur significant costs
associated with civil or criminal fines and penalties.
Although we maintain workers' compensation insurance to cover us
for costs and expenses we may incur due to injuries to our
employees resulting from the use of hazardous materials, this
insurance may not provide adequate coverage against potential
liabilities. We do not maintain insurance for environmental
liability or toxic tort claims that may be asserted against us in
connection with our storage or disposal of biological, hazardous or
radioactive materials.
In addition, we may incur substantial costs to comply with current
or future environmental, health and safety laws and regulations.
These current or future laws and regulations may impair our
research, development, or production efforts. Failure to comply
with these laws and regulations also may result in substantial
fines, penalties, or other sanctions, which could have a material
adverse effect on our operations.
To the extent our research and development activities involve using
iPSCs, we will be subject to complex and evolving laws and
regulations regarding privacy and informed consent. Many of these
laws and regulations are subject to change and uncertain
interpretation, and could result in claims, changes to our research
and development programs and objectives, increased cost of
operations or otherwise harm the Company.
To the extent that we pursue research and development activities
involving iPSCs, we will be subject to a variety of laws and
regulations in the U.S. and abroad that involve matters central to
such research and development activities, including obligations to
seek informed consent from donors for the use of their blood and
other tissue to produce, or have produced for us, iPSCs, as well as
state and federal laws that protect the privacy of such donors.
U.S. federal and state and foreign laws and regulations are
constantly evolving and can be subject to significant change. If we
engage in iPSC-related research and development activities in
countries other than the U.S., we may become subject to foreign
laws and regulations relating to human-subjects research and other
laws and regulations that are often more restrictive than those in
the U.S. In addition, both the application and interpretation of
these laws and regulations are often uncertain, particularly in the
rapidly evolving stem cell technology sector. Compliance with these
laws and regulations can be costly, can delay or impede our
research and development activities, result in negative publicity,
increase our operating costs, require significant management time
and attention and subject us to claims or other remedies, including
fines or demands that we modify or cease existing business
practices.
Legal, social and ethical concerns surrounding the use of iPSCs,
biological materials and genetic information could impair our
operations.
To the extent that our future stem cell research and development
activities involve the use of iPSCs and the manipulation of human
tissue and genetic information, the information we derive from such
iPSC-related research and development activities could be used in a
variety of applications, which may have underlying legal, social
and ethical concerns, including the genetic engineering or
modification of human cells, testing for genetic predisposition for
certain medical conditions and stem cell banking. Governmental
authorities could, for safety, social or other purposes, call for
limits on or impose regulations on the use of iPSCs and genetic
testing or the manufacture or use of certain biological materials
involved in our iPSC-related research and development programs.
Such concerns or governmental restrictions could limit our future
research and development activities, which could have a material
adverse effect on our business, financial condition and results of
operations.
Our human cellular bioassay systems and human cells we derive from
human pluripotent stem cells, although not currently subject to
regulation by the FDA or other regulatory agencies as biological
products or drugs, could become subject to regulation in the
future.
The human cells we produce from hPSCs and our customized bioassay
systems using such cells, including
CardioSafe
3D, are not currently sold, for research
purposes or any other purpose, to biotechnology or pharmaceutical
companies, government research institutions, academic and nonprofit
research institutions, medical research organizations or stem cell
banks, and they are not therapeutic procedures. As a result, they
are not subject to regulation as biological products or drugs by
the FDA or comparable agencies in other countries. However, if, in
the future, we seek to include human cells we derive from hPSCs in
therapeutic applications or product candidates, such applications
and/or product candidates would be subject to the FDA’s pre-
and post-market regulations. For example, if we seek to develop and
market human cells we produce for use in performing RM
applications, such as tissue engineering or organ replacement, we
would first need to obtain FDA pre-market clearance or approval.
Obtaining such clearance or approval from the FDA is expensive,
time-consuming and uncertain, generally requiring many years to
obtain, and requiring detailed and comprehensive scientific and
clinical data. Notwithstanding the time and expense, these efforts
may not result in FDA approval or clearance. Even if we were to
obtain regulatory approval or clearance, it may not be for the uses
that we believe are important or commercially
attractive.
Risks Related to Our Financial Position
We have incurred significant net losses since inception and we will
continue to incur substantial operating losses for the foreseeable
future. We may never achieve or sustain profitability, which would
depress the market price of our common stock and could cause you to
lose all or a part of your investment.
We have incurred significant net losses in each fiscal year since
our inception in 1998, including net losses of approximately $24.6
million and $14.3 million during our fiscal years ended March 31,
2019 and 2018, respectively, and approximately $11.5 million for
the six months ended September 30, 2019. At September 30, 2019, we
had an accumulated deficit of approximately $192.7 million. We do
not know whether or when we will become profitable. Substantially
all of our operating losses have resulted from costs incurred in
connection with our research and development programs and from
general and administrative costs associated with our operations. We
expect to incur increasing levels of operating losses over the next
several years and for the foreseeable future. Our prior losses,
combined with expected future losses, have had and will continue to
have an adverse effect on our stockholders’ equity and
working capital. We expect our research and development expenses to
significantly increase in connection with nonclinical studies and
clinical trials of our product candidates. In addition, if we
obtain marketing approval for our product candidates, we may incur
significant sales, marketing and outsourced-manufacturing expenses
should we elect not to collaborate with one or more third parties
for such services and capabilities. As a public company, we incur
additional costs associated with operating as a public company. As
a result, we expect to continue to incur significant and increasing
operating losses for the foreseeable future. Because of the
numerous risks and uncertainties associated with developing
pharmaceutical products, we are unable to predict the extent of any
future losses or when we will become profitable, if at all. Even if
we do become profitable, we may not be able to sustain or increase
our profitability on a quarterly or annual basis.
Our ability to become profitable depends upon our ability to
generate revenues. To date, we have generated approximately $17.7
million in revenues, consisting of receipt of non-dilutive cash
payments from collaborators, sublicense revenue, and research and
development grant awards from the NIH. We have not yet
commercialized any product or generated any revenues from product
sales, and we do not know when, or if, we will generate any revenue
from product sales. We do not expect to generate significant
revenue unless and until we obtain marketing approval of, and begin
to experience sales of, AV-101, PH94B, PH10 or another future
product candidate, or we enter into one or more development and
commercialization agreements with respect to AV-101, PH94B, PH10 or
one or more other future product candidates. Our ability to
generate revenue depends on a number of factors, including, but not
limited to, our ability to:
●
initiate
and successfully complete nonclinical and clinical trials that meet
their prescribed endpoints;
●
initiate
and successfully complete all safety studies required to obtain
U.S. and foreign marketing approval for our product
candidates;
●
timely
complete and compose successful regulatory submissions such as NDAs
or comparable documents for both the U.S. and foreign
jurisdictions;
●
commercialize
our product candidates, if approved, by developing a sales force or
entering into collaborations with third parties for sales and
marketing capabilities; and
●
achieve
market acceptance of our product candidates in the medical
community and with third-party payors.
Unless we enter into a commercialization collaboration or
partnership with respect to the commercialization of our product
candidates, we expect to incur significant sales and marketing
costs as we prepare to commercialize our product candidates. Even
if we initiate and successfully complete pivotal clinical trials of
our product candidates, and our product candidates are approved for
commercial sale, and despite expending these costs, our product
candidates may not be commercially successful. We may not achieve
profitability soon after generating product sales, if ever. If we
are unable to generate product revenue, we will not become
profitable and may be unable to continue operations without
continued funding.
We require additional financing to execute our business plan and
continue to operate as a going concern.
Our audited consolidated financial statements for the year ended
March 31, 2019 included in our Annual Report on Form 10-K for the
year ended March 31, 2019 were prepared assuming we will continue
to operate as a going concern, although we and our auditors have
indicated that our continuing losses and negative cash flows from
operations raise substantial doubt about our ability to continue as
such. Because we continue to experience net operating losses, our
ability to continue as a going concern is subject to our ability to
obtain necessary funding from outside sources, including obtaining
additional funding from this offering as well as future sales of
our securities or potentially obtaining loans and grant awards from
financial institutions and/or government agencies where possible.
Our continued net operating losses increase the difficulty in
completing such sales or securing alternative sources of funding,
and there can be no assurances that we will be able to obtain any
future funding on favorable terms or at all. If we are unable to
obtain sufficient financing from the sale of our securities or from
alternative sources, we may be required to reduce, defer, or
discontinue certain or all of our research and development
activities or we may not be able to continue as a going
concern.
Since our inception, most of our resources have been dedicated to
research and development of AV-101 and the DR capabilities of
VistaStem’s stem cell technology platform. In particular, we
have expended substantial resources on research and development of
methods and processes relating to the production of AV-101 API and
drug product, advancing AV-101 through IND-enabling preclinical
development, Phase 1 clinical safety studies, and into ongoing
Phase 2 clinical development, including preparation for and launch
of our ELEVATE Study, as well as research and development and
regulatory expenses related to the production of PH94B and PH10 and
our stem cell technology platform, including development
of
CardioSafe
3D for DR and our cardiac stem cell
technology for potential RM applications in connection with the
Bluerock Agreement, and we expect to continue to expend substantial
resources for the foreseeable future developing and commercializing
our product candidates on our own or in collaborations. These
expenditures will include costs associated with general and
administrative costs, facilities costs, research and development,
acquiring new technologies, manufacturing product candidates,
conducting nonclinical experiments and clinical trials and
obtaining regulatory approvals, as well as commercializing any
products approved for sale.
At September 30, 2019, we had cash and cash equivalents of
approximately $4.1 million. We do not believe this amount alone is
sufficient to enable us to fund our planned operations for at least
the twelve months following the issuance of the financial
statements included elsewhere in this Report. We expect to seek
additional capital to produce PH94B study material, conduct PH94B
pivotal Phase 3 clinical trials, produce additional AV-101
study material for future nonclinical and clinical studies, conduct
AV-101 Phase 3-enabling toxicology studies, conduct pivotal Phase 3
clinical studies of AV-101 in MDD, conduct AV-101 Phase 2 studies
in LID, MDD, NP and SI, produce PH10 study material and conduct a
Phase 2b clinical trial of PH10 in MDD, acquire or license and
conduct research and development of additional product
candidates and to fund our internal operations.
Further, we have no current source of revenue to sustain our
present activities, and we do not expect to generate revenue until,
and unless, we (i) out-license or sell a product candidate to a
third-party, (ii) enter into additional license arrangements
involving our stem cell technology, or (iii) obtain approval from
the FDA or other regulatory authorities and successfully
commercialize, on our own or through a future collaboration, one or
more of our product candidates.
As the outcome of our ongoing research and development activities,
including the outcome of ongoing and future anticipated clinical
trials is highly uncertain, we cannot reasonably estimate the
actual amounts necessary to successfully complete the development
and commercialization of our product candidates, on our own or in
collaboration with others. Most recently, we completed dosing
patients enrolled in the ELEVATE Study, and we expect to report top
line results from the ELEVATE Study by the end of 2019. If the
results of the ELEVATE Study are supportive of further clinical
studies, including a larger, Phase 3 pivotal study, we will
experience a substantial increase in research and development
costs. This, in turn, will require that we seek additional capital
that may result in debt or dilution to our current stockholders.
Even if the results of the ELEVATE Study do not warrant additional
clinical development of AV-101 as an add-on treatment for MDD, we
will continue to incur costs associated with other development
programs for AV-101, as well as PH94B and PH10. In addition, other
unanticipated costs may arise. As a result of these and other
factors, we will need to seek additional capital in the near term
to meet our future operating requirements, including capital
necessary to develop, obtain regulatory approval for, and to
commercialize our product candidates, and may seek additional
capital in the event there exists favorable market conditions or
strategic considerations even if we believe we have sufficient
funds for our current or future operating plans. We have completed
in the past, and are currently considering a range of potential
financing transactions, including public or private equity or debt
financings, government or other third-party funding, marketing and
distribution arrangements and other collaborations, strategic
alliances and licensing arrangements or a combination of these
approaches, and we may complete additional financing arrangements
later in 2019 and thereafter. Raising funds in the current economic
environment may present additional challenges. Even if we believe
we have sufficient funds for our current or future operating plans,
we may seek additional capital if market conditions are favorable
or if we have specific strategic considerations.
Our future capital requirements depend on many factors,
including:
●
the
number and characteristics of the product candidates we
pursue;
●
the
scope, progress, results and costs of researching and developing
our product candidates, and conducting preclinical and clinical
studies;
●
the
timing of, and the costs involved in, obtaining regulatory
approvals for our product candidates;
●
the
cost of commercialization activities if any of our product
candidates are approved for sale, including marketing, sales and
distribution costs;
●
the
cost of manufacturing our product candidates and any products we
successfully commercialize;
●
our
ability to establish and maintain strategic partnerships, licensing
or other collaborative arrangements and the financial terms of such
agreements;
●
market
acceptance of our product candidates;
●
the
effect of competing technological and market
developments;
●
our
ability to obtain government funding for our research and
development programs;
●
the
costs involved in obtaining, maintaining and enforcing patents to
preserve our intellectual property;
●
the
costs involved in defending against such claims that we infringe
third-party patents or violate other intellectual property rights
and the outcome of such litigation;
●
the
timing, receipt and amount of potential future licensee fees,
milestone payments, and sales of, or royalties on, our future
products, if any; and
●
the
extent to which we may acquire or invest in additional businesses,
product candidates and technologies.
Any additional fundraising efforts will divert certain members of
our management team from their day-to-day activities, which may
adversely affect our ability to develop and commercialize our
product candidates. In addition, our ability to engage in certain
types of capital raising transactions may be limited by the Listing
Rules of the Nasdaq Stock Market and/or General Instruction I.B.6
of Form S-3 so long as the market value of our common stock held by
non-affiliates remains below $75 million. We cannot guarantee that
future financing will be available in sufficient amounts, in a
timely manner, or on terms acceptable to us, if at all. The terms
of any future financing may adversely affect the holdings or the
rights of our stockholders and the issuance of additional
securities, whether equity or debt, by us, or the possibility of
such issuance, may cause the market price of our shares to decline.
The sale of additional equity securities and the conversion,
exchange or exercise of certain of our outstanding securities will
dilute all of our stockholders. The incurrence of debt could result
in increased fixed payment obligations and we could be required to
agree to certain restrictive covenants, such as limitations on our
ability to incur additional debt, limitations on our ability to
acquire, sell or license intellectual property rights and other
operating restrictions that could adversely impact our ability to
conduct our business. We could also be required to seek funds
through arrangements with collaborative partners or otherwise at an
earlier stage than otherwise would be desirable and we may be
required to relinquish rights to some of our technologies or
product candidates or otherwise agree to terms unfavorable to us,
any of which may have a material adverse effect on our business,
operating results and prospects.
If we are unable to obtain additional funding on a timely basis and
on acceptable terms, we may be required to significantly curtail,
delay or discontinue one or more of our research or product
development programs or the commercialization of any product
candidate or be unable to continue or expand our operations or
otherwise capitalize on our business opportunities, as desired,
which could materially affect our business, financial condition and
results of operations.
We have identified
material weaknesses in our internal control over financial
reporting, and our business and stock price may be adversely
affected if we do not adequately address those weaknesses or if we
have other material weaknesses or significant deficiencies in our
internal control over financial reporting
.
We have identified material weaknesses in our internal control over
financial reporting. In particular, we concluded that (i) the size
of our staff does not permit appropriate segregation of duties to
(a) permit appropriate review of accounting transactions and/or
accounting treatment by multiple qualified individuals, and (b)
prevent one individual from overriding the internal control system
by initiating, authorizing and completing all transactions, and
(ii) we utilize accounting software that does not prevent erroneous
or unauthorized changes to previous reporting periods and/or can be
adjusted so as to not provide an adequate auditing trail of entries
made in the accounting software.
T
he existence of one or more
material weaknesses or significant deficiencies could result in
errors in our financial statements, and substantial costs and
resources may be required to rectify any internal control
deficiencies. If we cannot produce reliable financial reports,
investors could lose confidence in our reported financial
information, we may be unable to obtain additional financing to
operate and expand our business and our business and financial
condition could be harmed.
Raising additional capital will cause substantial dilution to our
existing stockholders, may restrict our operations or require us to
relinquish rights, and may require us to seek stockholder approval
to authorize additional shares of our common stock.
We intend to pursue private and public equity offerings, debt
financings, strategic collaborations and licensing arrangements
during 2019 and beyond. To the extent that we raise additional
capital through the sale of common stock or securities convertible
or exchangeable into common stock, or to the extent, for strategic
purposes, we convert or exchange certain of our outstanding
securities into common stock, our current stockholders’
ownership interest in our company will be substantially diluted. In
addition, the terms of any such securities may include liquidation
or other preferences that materially adversely affect rights of our
stockholders. Debt financing, if available, would increase our
fixed payment obligations and may involve agreements that include
covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital
expenditures or declaring dividends. If we raise additional funds
through collaboration, strategic partnerships and licensing
arrangements with third parties, we may have to relinquish valuable
rights to our product candidates, our intellectual property, future
revenue streams or grant licenses on terms that are not favorable
to us.
Some of our programs have been partially supported by government
grant awards, which may not be available to us in the
future.
Since inception, we have received substantial funds under grant
award programs funded by state and federal governmental agencies,
such as the NIH, the NIH’s National Institute of Neurological
Disease and Stroke (
NINDS
) and the NIMH, and the California Institute for
Regenerative Medicine (
CIRM
). To fund a portion of our future research and
development programs, we may apply for additional grant funding
from such or similar governmental
organizations. However, funding by these governmental
organizations may be significantly reduced or eliminated in the
future for a number of reasons. For example, some programs are
subject to a yearly appropriations process in Congress. In
addition, we may not receive funds under future grants because of
budgeting constraints of the agency administering the program.
Therefore, we cannot assure you that we will receive any future
grant funding from any government organization or
otherwise. A restriction on the government funding
available to us could reduce the resources that we would be able to
devote to future research and development efforts. Such a reduction
could delay the introduction of new products and hurt our
competitive position.
Our ability to use net operating losses to offset future taxable
income is subject to certain limitations.
As of March 31, 2019, we had federal and state net operating
loss carryforwards of approximately $109.0 million and $63.6
million, respectively, which begin to expire in fiscal
2020. Under Section 382 of the Internal Revenue
Code of 1986, as amended (the
Code
), changes in our ownership may limit the amount
of our net operating loss carryforwards that could be utilized
annually to offset our future taxable income, if any. This
limitation would generally apply in the event of a cumulative
change in ownership of our company of more than 50% within a
three-year period. Any such limitation may significantly reduce our
ability to utilize our net operating loss carryforwards and tax
credit carryforwards before they expire. Any such limitation,
whether as the result of future offerings, prior private
placements, sales of our common stock by our existing stockholders
or additional sales of our common stock by us in the future, could
have a material adverse effect on our results of operations in
future years. We have not completed a study to assess whether an
ownership change for purposes of Section 382 has occurred, or
whether there have been multiple ownership changes since our
inception, due to the significant costs and complexities associated
with such study.
General Company-Related Risks
If we fail to attract and retain senior management and key
scientific personnel, we may be unable to successfully produce,
develop and commercialize our product candidates.
Our success depends in part on our continued ability to attract,
retain and motivate highly qualified management and scientific and
technical personnel. We are highly dependent upon our Chief
Executive Officer, President and Chief Scientific Officer, Chief
Medical Officer, Chief Financial Officer, and Vice President
– Corporate Development as well as our other employees,
consultants and scientific collaborators. As of the date of this
Annual Report, we have nine full-time employees, which may make us
more reliant on our individual employees than companies with a
greater number of employees. The loss of services of any of these
individuals could delay or prevent the successful development of
our product candidates or disrupt our administrative
functions.
Although we have not historically experienced unique difficulties
attracting and retaining qualified employees, we could experience
such problems in the future. For example, competition for qualified
personnel in the biotechnology and pharmaceuticals field is
intense. We will need to hire additional personnel should we elect
to expand our research and development and administrative
activities. We may not be able to attract and retain quality
personnel on acceptable terms.
In addition, we rely on a broad and diverse range of strategic
consultants and advisors, including manufacturing, nonclinical and
clinical development, and regulatory advisors, to assist us in
designing and implementing our research and development and
regulatory strategies and plans for our product candidates. Our
consultants and advisors may be employed by employers other than us
and may have commitments under consulting or advisory contracts
with other entities that may limit their availability to
us.
As we seek to advance development of our product candidates, we may
need to expand our research and development capabilities and/or
contract with third parties to provide these capabilities for us.
As our operations expand, we expect that we will need to manage
additional relationships with various strategic partners and other
third parties. Future growth will impose significant added
responsibilities on members of management. Our future financial
performance and our ability to develop and commercialize our
product candidates and to compete effectively will depend, in part,
on our ability to manage any future growth effectively. To that
end, we must be able to manage our research and development efforts
effectively and hire, train and integrate additional management,
administrative and technical personnel. The hiring, training and
integration of new employees may be more difficult, costly and/or
time-consuming for us because we have fewer resources than a larger
organization. We may not be able to accomplish these tasks, and our
failure to accomplish any of them could prevent us from
successfully growing the Company.
If product liability lawsuits are brought against us, we may incur
substantial liabilities and may be required to limit
commercialization of our product candidates.
As we develop our product candidates. either on our own or in
collaboration with others, we will face inherent risks of product
liability as a result of the required clinical testing of such
product candidates, and will face an even greater risk if we or our
collaborators commercialize any such product candidates. For
example, we may be sued if AV-101, PH94B, PH10, any DR NCE, other
product candidate, or RM product candidate we develop allegedly
causes injury or is found to be otherwise unsuitable during product
testing, manufacturing, marketing or sale. Any such product
liability claims may include allegations of defects in
manufacturing, defects in design, a failure to warn of dangers
inherent in the product, negligence, strict liability, and a breach
of warranties. Claims could also be asserted under state consumer
protection acts. If we cannot successfully defend ourselves against
product liability claims, we may incur substantial liabilities or
be required to limit commercialization of our product candidates.
Even successful defense would require significant financial and
management resources. Regardless of the merits or eventual outcome,
liability claims may result in:
●
decreased
demand for product candidates that we may develop;
●
injury
to our reputation;
●
withdrawal
of clinical trial participants;
●
costs
to defend the related litigation;
●
a
diversion of management's time and our resources;
●
substantial
monetary awards to trial participants or patients; or
●
product
recalls, withdrawals or labeling, marketing or promotional
restrictions.
Our inability to obtain and retain sufficient product liability
insurance at an acceptable cost to protect against potential
product liability claims could prevent or inhibit the
commercialization of products we develop. Although we maintain
general and product liability insurance, any claim that may be
brought against us could result in a court judgment or settlement
in an amount that is not covered, in whole or in part, by our
insurance or that is in excess of the limits of our insurance
coverage. Our insurance policies also have various exclusions, and
we may be subject to a product liability claim for which we have no
coverage. We will have to pay any amounts awarded by a court or
negotiated in a settlement that exceed our coverage limitations or
that are not covered by our insurance, and we may not have, or be
able to obtain, sufficient capital to pay such
amounts.
As a public company, we incur significant administrative workload
and expenses to comply with U.S. regulations and requirements
imposed by the Nasdaq Stock Market concerning corporate governance
and public disclosure.
As a public company with common stock listed on the Nasdaq Capital
Market, we must comply with various laws, regulations and
requirements, including certain provisions of the Sarbanes-Oxley
Act of 2002, as well as rules implemented by the SEC and the Nasdaq
Stock Market. Complying with these statutes, regulations and
requirements, including our public company reporting requirements,
continues to occupy a significant amount of the time of management
and involves significant accounting, legal and other expenses. Our
efforts to comply with these regulations are likely to result in
increased general and administrative expenses and management time
and attention directed to compliance activities.
Unfavorable global economic or political conditions could adversely
affect our business, financial condition or results of
operations.
Our results of operations could be adversely affected by global
political conditions, as well as general conditions in the global
economy and in the global financial and stock markets. Global
financial and political crises cause extreme volatility and
disruptions in the capital and credit markets. A severe or
prolonged economic downturn, such as the recent global financial
crisis, could result in a variety of risks to our business,
including, weakened demand for our product candidates and our
ability to raise additional capital when needed on acceptable
terms, if at all. A weak or declining economy could also strain our
suppliers, possibly resulting in supply disruption, or cause our
customers to delay making payments for our services. Any of the
foregoing could harm our business and we cannot anticipate all of
the ways in which the current economic climate and financial market
conditions could adversely impact our business.
We or the third parties upon whom we depend may be adversely
affected by natural disasters and our business continuity and
disaster recovery plans may not adequately protect us from a
serious disaster.
Natural disasters could severely disrupt our operations, and have a
material adverse effect on our business, results of operations,
financial condition and prospects. If a natural disaster, power
outage or other event occurred that prevented us from using all or
a significant portion of our headquarters, that damaged critical
infrastructure, such as the manufacturing facilities of our
third-party CMOs, or that otherwise disrupted operations, it may be
difficult or, in certain cases, impossible for us to continue our
business for a substantial period of time. The disaster recovery
and business continuity plans we have in place may prove inadequate
in the event of a serious disaster or similar event. We may incur
substantial expenses as a result of the limited nature of our
disaster recovery and business continuity plans, which could have a
material adverse effect on our business.
Our business and
operations would suffer in the event of cybersecurity or other
system failures. Our business depends on complex information
systems, and any failure to successfully maintain these systems or
implement new systems to handle our changing needs could result in
a material disruption of our product candidates’ development
programs or otherwise materially harm our
operations.
In the ordinary course of our business, we collect and store
sensitive data, including intellectual property, our proprietary
business information and that of our suppliers, as well as
personally identifiable information of employees. Similarly, our
third-party CROs, CMOs and other contractors and consultants
possess certain of our sensitive data. The secure maintenance of
this information is material to our operations and business
strategy. Despite the implementation of security measures, our
internal computer systems and those of our third-party CROs, CMOs
and other contractors and consultants are vulnerable to attacks by
hackers, damage from computer viruses, unauthorized access, breach
due to employee error, malfeasance or other disruptions, natural
disasters, terrorism and telecommunication and electrical failures.
Any such attack or breach could compromise our networks and the
information stored there could be accessed, publicly disclosed,
lost or stolen. The legislative and regulatory landscape for
privacy and data protection continues to evolve, and there has been
an increasing amount of focus on privacy and data protection issues
with the potential to affect our business, including recently
enacted laws in a majority of states requiring security breach
notification. Thus, any access, disclosure or other loss of
information, including our data being breached at our partners or
third-party providers, could result in legal claims or proceedings
and liability under laws that protect the privacy of personal
information, disruption of our operations, and damage to our
reputation, which could adversely affect our business.
While we have not experienced any such system failure, accident, or
security breach to date, if such an event were to occur and cause
interruptions in our operations, it could result in a material
disruption of our programs. For example, the loss of clinical trial
data for AV-101, PH94B, PH10 or other product candidates could
result in delays in our regulatory approval efforts and
significantly increase our costs to recover or reproduce the data.
To the extent that any disruption or security breach results in a
loss of or damage to our data or applications or other data or
applications relating to our technology or product candidates, or
inappropriate disclosure of confidential or proprietary
information, we could incur liabilities and the further development
of our product candidates could be delayed.
We may acquire businesses or product candidates, or form strategic
alliances, in the future, and we may not realize the benefits of
such acquisitions.
We may acquire additional businesses or product candidates, form
strategic alliances or create joint ventures with third parties
that we believe will complement or augment our existing business.
If we acquire businesses with promising markets or technologies, we
may not be able to realize the benefit of acquiring such businesses
if we are unable to successfully integrate them with our existing
operations and company culture. We may encounter numerous
difficulties in developing, manufacturing and marketing any new
product candidates resulting from a strategic alliance, licensing
transaction or acquisition that delay or prevent us from realizing
their expected benefits or enhancing our business. We cannot assure
you that, following any such acquisition or licensing transaction,
we will achieve the expected synergies to justify the
transaction.
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 we near 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 AV-101, PH94B, PH10 and
also to hPSC technology.
Although we own and have licensed issued and allowed patents and
patent applications relating to AV-101, PH94B and PH10 in the U.S.,
selected countries in the EU and other jurisdictions, we cannot yet
provide any assurances that any of our pending U.S. and additional
foreign patent applications will mature into issued patents and, if
they do, that any of our patents will include claims with a scope
sufficient to protect our product candidates or otherwise provide
any competitive advantage.
Moreover, other parties may have developed technologies that may be
related or competitive to our approach and may have filed or may
file patent applications and may have received or may receive
patents that may overlap or conflict with our patent properties,
for example, either by claiming the same methods or formulations or
by claiming subject matter that could dominate our patent position.
Such third-party patent positions may limit or even eliminate our
ability to obtain or maintain patent protection.
The uncertainty about adequate protection includes changes to the
patent laws through either legislative action to change statutory
patent law or court action that may reinterpret existing law in
ways affecting the scope or validity of issued patents. Moreover,
relevant laws differ from country-to-country.
The patent positions of biotechnology and pharmaceutical companies,
including our patent portfolio with respect to our product
candidates, involve complex legal and factual questions, and,
therefore, the issuance, scope, validity and enforceability of any
additional patent claims that we may obtain cannot be predicted
with certainty.
Our ability to obtain valid and enforceable patents depends in
large measure on whether the differences between our technology and
the prior art allow our inventions to be patentable over
relevant prior art. Such prior art includes scientific
publications, investment blogs, granted patents and published
patent applications. Patent uncertainty cannot be eliminated
because of the potential existence of other prior art about which
we are currently unaware that may be relevant to our patent
applications and patents, which may prevent a pending patent
application from being granted or result in an issued patent being
held invalid or unenforceable.
In addition, some patent-related uncertainty exists because of the
challenge in finding and addressing all of the relevant and
material prior art in the biotechnology and pharmaceutical
fields. For example, there are numerous reports in the scientific
literature of compounds that target similar cellular receptors as
certain of our product candidates or were evaluated in early (often
pre-clinical) studies. In addition, even some reports in the trade
press and public announcements made us before the filing date of
our AV-101 patent applications mentioned that AV-101 was in
development for certain therapeutic purposes. For example, we
published a web post on the NIH clinical trials website prior to
our filing of our initial AV-101 patent applications, which
describes unit doses for a then future study, but does not mention
treatment of depression and does not provide any preclinical or
clinical study data relating to depression or any other medical
condition, disease or disorder. This post was not submitted to the
United States Patent and Trademark Office (
USPTO
) in our two granted U.S. patents related to (i)
unit dose formulations of AV-101 effective to treat depression and
(ii) methods of treating depression with AV-101, respectively.
However, it was submitted in our pending AV-101 patent applications
that make similar claims, and we are considering entering this web
post in the record of the aforementioned two issued U.S. patents.
Another source of uncertainty pertains to patent properties that
were in-licensed by us for which prior art submissions were under
the control of the licensor. We rely on these licensors to have
satisfied the relevant disclosure obligations.
In the event any previously published prior art is deemed to be
invalidating prior art, it may cause certain of our issued
patents to be invalid and/or unenforceable which would cause us to
lose at least part, and perhaps all, of the patent protection on
our product candidates. Such a loss of patent protection would have
a material adverse impact on our business.
Obtaining and maintaining our patent protection depends on
compliance with various procedural, document submission, fee
payment and other requirements imposed by governmental patent
agencies, and our patent protection could be reduced or eliminated
for non-compliance with these requirements.
The USPTO, the European Patent Office (
EPO
) and various other foreign governmental patent
agencies require compliance with a number of procedural,
documentary, fee payment and other provisions during the patent
process. There are situations in which noncompliance can result in
abandonment or lapse of a patent or patent application, resulting
in partial or complete loss of patent rights in the relevant
jurisdiction. In such an event, competitors might be able to enter
the market earlier than would otherwise have been the
case.
Even if patents do successfully issue, third parties may challenge
the validity, enforceability or scope of such issued patents or any
other issued patents we own or license, which may result in such
patents being narrowed, invalidated or held
unenforceable.
United States and foreign patents and patent applications may be
subject to various types of infringement and validity proceedings,
including interference proceedings,
ex parte
reexamination,
inter
partes
review proceedings,
supplemental examination and challenges in district court. Patents
may be subjected to opposition, post-grant review, invalidity
actions, or comparable proceedings lodged in various foreign, both
national and regional, patent offices or courts. These proceedings
could result in loss of the patent or denial of the patent
application or loss or reduction in the scope of one or more of the
claims of the patent or patent in such a way that they no longer
cover our product candidates or competitive
products.
Furthermore, though an issued patent is presumed valid and
enforceable, its issuance is not conclusive as to its validity or
its enforceability and it may not provide us with adequate
proprietary protection or competitive advantages against
competitors with similar products. Even if a patent issues and is
held to be valid and enforceable, competitors may be able to design
around our patents, for example, by using pre-existing or newly
developed technology. Other parties may develop and obtain patent
protection for more effective technologies, designs or
methods.
If we or one of our licensing partners initiated legal proceedings
against a third-party to enforce a patent covering one of our
product candidates, including patents related to AV-101, PH94B or
PH10, the defendant could counterclaim that the patent covering our
product candidate is invalid and/or unenforceable. In patent
litigation in the United States, defendant counterclaims alleging
invalidity and/or unenforceability are commonplace. Grounds for a
validity challenge include alleged failures to meet any of several
statutory requirements, including lack of novelty, obviousness or
non-enablement. Grounds for unenforceability assertions include
allegations that someone connected with prosecution of the patent
withheld relevant information from the USPTO or made a misleading
statement during prosecution. Third parties may also raise similar
claims before administrative bodies in the United States or abroad,
even outside the context of litigation. If a defendant were to
prevail on a legal assertion of invalidity and/or unenforceability,
we would lose at least part, and perhaps all, of the patent
protection on our product candidates. Such a loss of patent
protection would have a material adverse impact on our
business.
In addition, such patent-related proceedings may be costly. Thus,
any patent properties that we may own or exclusively license
ultimately may not provide commercially meaningful protection
against competitors. Furthermore, an adverse decision in an
interference proceeding can result in a third party receiving the
patent right sought by us, which in turn could affect our ability
to develop, market or otherwise commercialize our product
candidates.
We may not be able to prevent the unauthorized disclosure or use of
our technical knowledge or trade secrets by consultants, vendors,
or former or current employees. The laws of some foreign countries
do not protect our proprietary rights to the same extent as the
laws of the United States, and we may encounter significant
problems in protecting our proprietary rights in these countries.
If these developments were to occur, they could have a material
adverse effect on our sales.
Our ability to enforce our patent rights also depends on our
ability to detect infringement. It is difficult to detect
infringers who do not advertise the components or manufacturing
processes that are used in their products. Moreover, it may be
difficult or impossible to obtain evidence of infringement in a
competitor’s or potential competitor’s product. Any
litigation to enforce or defend our patent rights, even if we were
to prevail, could be costly and time-consuming and would divert the
attention of our management and key personnel from our business
operations. We may not prevail in any lawsuits that we initiate and
the damages or other remedies awarded if we were to prevail may not
be commercially meaningful.
In addition, proceedings to enforce or defend our patents could put
our patents at risk of being invalidated, held unenforceable, or
interpreted narrowly. Such proceedings could also provoke third
parties to assert claims against us, including that some or all of
the claims in one or more of our patents are invalid or otherwise
unenforceable. If any patents covering our product candidates are
invalidated or found unenforceable, our financial position and
results of operations would be materially and adversely impacted.
In addition, if a court found that valid, enforceable patents held
by third parties covered our product candidates, our financial
position and results of operations would also be materially and
adversely impacted.
Overall, the degree of future protection for our proprietary rights
is uncertain, and we cannot ensure that:
●
any issued patents related to AV-101, PH94B, PH10
or any pending patent applications, if issued and challenged by
others, will include or maintain claims having a scope sufficient
to protect AV-101, PH94B, PH10 or any other products or product
candidates against generic or other competition, particularly
considering that any patent rights to these compounds
per se
have expired;
●
any
of our pending patent applications will issue as patents at
all;
●
we
will be able to successfully commercialize our product candidates,
if approved, before our relevant patents expire;
●
we
were the first to make the inventions covered by each of our
patents and pending patent applications;
●
we
were the first to file patent applications for these
inventions;
●
others
will not develop similar or alternative technologies that do not
infringe our patents;
●
others
will not use pre-existing technology to effectively compete against
us;
●
any
of our patents, if issued, will ultimately be found to be valid and
enforceable, including on the basis of prior art relating to our
patent applications and patents;
●
any
patents currently held or issued to us in the future will provide a
basis for an exclusive market for our commercially viable products,
will provide us with any competitive advantages or will not be
challenged by third parties;
●
we
will develop additional proprietary technologies or product
candidates that are separately patentable; or
●
our
commercial activities or products will not infringe upon the
patents or proprietary rights of others.
We also rely upon unpatented trade secrets, unpatented know-how and
continuing technological innovation to develop and maintain our
competitive position, which we seek to protect, in part, by
confidentiality agreements with our employees and our collaborators
and consultants. It is possible that technology relevant to our
business will be independently developed by a person that is not a
party to such an agreement. Furthermore, if the
employees, collaborators and consultants who are parties to these
agreements breach or violate the terms of these agreements, we may
not discover or have adequate remedies for any such breach or
violation, and we could lose our trade secrets through such
breaches or violations. Further, our trade secrets could otherwise
become known or be independently discovered by our
competitors.
Third parties may initiate legal proceedings against us alleging
that we infringe their intellectual property rights, which may
prevent or delay our product development efforts and stop us from
commercializing candidate products or increase the costs of
commercializing them, if approved. Also, we may file counterclaims
or initiate other legal proceedings against third parties to
challenge the validity or scope of their intellectual property
rights, the outcomes of which also would be uncertain and could
have a material adverse effect on the success of our
business.
We cannot assure that our business, product candidates and methods
do not or will not infringe the patents or other intellectual
property rights of third parties. Third parties may initiate legal
proceedings against us or our licensors or collaborators alleging
that we or our licensors or collaborators infringe their
intellectual property rights. In addition, we or our licensors or
collaborators may file counterclaims in such proceedings or
initiate separate legal proceedings against third parties to
challenge the validity or scope of their intellectual property
rights, including in oppositions, interferences,
reexaminations,
inter partes
reviews or derivation proceedings
before the United States or other
jurisdictions.
Our success will depend in part on our ability to operate without
infringing the intellectual property and proprietary rights of
third parties. Success also will depend on our ability to prevail
in litigation if we are sued for infringement or to resolve
litigation matters with rights and at costs favorable to
us.
The pharmaceutical industry is characterized by extensive
litigation regarding patents and other intellectual property
rights. Other parties may allege that our product candidates or the
use of our technologies infringes patent claims or other
intellectual property rights held by them or that we are employing
their proprietary technology without authorization. As we continue
to develop and, if approved, commercialize our current product
candidates and future product candidates, competitors may claim
that our technology infringes their intellectual property rights as
part of their business strategies designed to impede our successful
commercialization. There may be third-party patents or patent
applications with claims to materials, formulations, methods of
manufacture or methods for treatment related to the use or
manufacture of our product candidates. Because patent applications
can take many years to issue, third parties may have currently
pending patent applications that later result in issued patents
that our product candidates may infringe, or that such third
parties assert are infringed by our technologies.
The foregoing types of proceedings can be expensive and
time-consuming and many of our own or our licensors’ or
collaborators’ adversaries in these proceedings may have the
ability to dedicate substantially greater resources to prosecuting
these legal actions than we or our licensors or collaborators
can. Our defense of litigation or other proceedings may fail
and, even if successful, may result in substantial costs and
distract our management and other employees. We may not be able to
prevent, alone or with our licensors, misappropriation of our
intellectual property rights, particularly in countries where the
laws may not protect those rights as fully as in the United States
or European Union.
The outcome of intellectual property litigation is subject to
uncertainties that cannot be adequately quantified in advance. The
coverage of patents is subject to interpretation by the courts, and
the interpretation is not always uniform. If we are sued for patent
infringement, we would need to demonstrate that our product
candidates, products or methods either do not infringe the patent
claims of the relevant patent or that the patent claims are
invalid, and we may not be able to do this. Even if we are
successful in these proceedings, we may incur substantial costs and
the time and attention of our management and scientific personnel
could be diverted in pursuing these proceedings, which could have a
material adverse effect on us. In addition, we may not have
sufficient financial resources to bring these actions to a
successful conclusion.
An unfavorable outcome in the foregoing kinds of proceedings could
require us or our licensors or collaborators to cease using the
related technology or developing or commercializing our product
candidates, or to attempt to license rights to it from the
prevailing party. Our business could be harmed if the prevailing
party does not offer us or our licensors or collaborators a license
on commercially reasonable terms or at all. Even if we or our
licensors or collaborators obtain a license, it may be
non-exclusive, thereby giving our competitors access to the same
technologies licensed to us or our licensors or
collaborators.
In addition, we could be found liable for monetary damages,
including treble damages and attorneys’ fees, if we are found
to have willfully infringed a patent. A finding of infringement
could prevent us from commercializing our product candidates or
force us to cease some of our business operations, which could
materially harm our business.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be
compromised by disclosure during this type of litigation. There
could also be public announcements of the results of hearings,
motions or other interim proceedings or developments. If securities
analysts or investors perceive these results to be negative, it
could have a material adverse effect on the price of our common
stock.
Patent and other types of intellectual property litigation can
involve complex factual and legal questions, and their outcomes are
uncertain. Any claim relating to intellectual property infringement
that is successfully asserted against us may require us to pay
substantial damages, including treble damages and attorney’s
fees if we are found to have willfully infringed a third
party’s patents, for past use of the asserted intellectual
property and royalties and other consideration going forward if we
are forced to take a license. In addition, if any such claim is
successfully asserted against us and we could not obtain such a
license, we may be forced to stop or delay developing,
manufacturing, selling or otherwise commercializing our product
candidates.
Patent litigation is costly and time-consuming. We may not have
sufficient resources to bring these actions to a successful
conclusion. Even if we are successful in these proceedings, we may
incur substantial costs and divert management time and attention in
pursuing these proceedings, which could have a material adverse
effect on us. If we are unable to avoid infringing the patent
rights of others, we may be required to seek a license, defend an
infringement action or challenge the validity of the patents in
court, or redesign our products.
In addition, intellectual property litigation or claims could force
us to do one or more of the following:
●
cease
developing, selling or otherwise commercializing our product
candidates;
●
pay
substantial damages for past use of the asserted intellectual
property;
●
obtain
a license from the holder of the asserted intellectual property,
which license may not be available on reasonable terms, if at all;
and
●
in
the case of trademark claims, redesign, or rename, some or all of
our product candidates to avoid infringing the intellectual
property rights of third parties, which may not be possible and,
even if possible, could be costly and time-consuming.
Any of these risks coming to fruition could have a material adverse
effect on our business, results of operations, financial condition
and prospects.
The Company may be subject to claims challenging the inventorship
or ownership of our patents and other intellectual
property.
We enter into confidentiality and intellectual property assignment
agreements with our employees, consultants, outside scientific
collaborators, sponsored researchers and other advisors. These
agreements generally provide that inventions conceived by the party
in the course of rendering services to us will be our exclusive
property. However, these agreements may not be honored and may not
effectively assign intellectual property rights to us. For example,
even if we have a consulting agreement in place with an academic
advisor pursuant to which such academic advisor is required to
assign any inventions developed in connection with providing
services to us, such academic advisor may not have the right to
assign such inventions to us, as it may conflict with his or her
obligations to assign their intellectual property to his or her
employing institution.
Litigation may be necessary to defend against these and other
claims challenging inventorship or ownership. If we fail in
defending any such claims, in addition to paying monetary damages,
we may lose valuable intellectual property rights, such as
exclusive ownership of, or right to use, valuable intellectual
property. Such an outcome could have a material adverse effect on
our business. Even if we are successful in defending against such
claims, litigation could result in substantial costs and be a
distraction to management and other employees.
We do not seek to protect our intellectual property rights in all
jurisdictions throughout the world and we may not be able to
adequately enforce our intellectual property rights even in the
jurisdictions where we seek protection.
Filing, prosecuting and defending patents on product candidates in
all countries and jurisdictions throughout the world is
prohibitively expensive, and our intellectual property rights in
some countries outside the U.S. could be less extensive than those
in the United States, assuming that rights are obtained in the U.S.
In addition, the laws of some foreign countries do not protect
intellectual property rights to the same extent as federal and
state laws in the U.S. Consequently, we may not be able to prevent
third parties from practicing our inventions in all countries
outside the U.S., or from selling or importing products made using
our inventions in and into the United States or other
jurisdictions. The statutory deadlines for pursuing patent
protection in individual foreign jurisdictions are based on the
priority date of each of our patent applications. For the pending
patent applications relating to AV-101, as well as for other of the
patent families that we own or license, the relevant statutory
deadlines have not yet expired. Thus, for each of the patent
families that we believe provide coverage for our lead product
candidates or technologies, we will need to decide whether and
where to pursue protection outside the U.S.
Competitors may use our technologies in jurisdictions where we do
not pursue and obtain patent protection to develop their own
products and further, may export otherwise infringing products to
territories where we have patent protection, but enforcement is not
as strong as that in the U.S. These products may compete with our
products and our patents or other intellectual property rights may
not be effective or sufficient to prevent them from competing. Even
if we pursue and obtain issued patents in particular jurisdictions,
our patent claims or other intellectual property rights may not be
effective or sufficient to prevent third parties from so
competing.
The laws of some foreign countries do not protect intellectual
property rights to the same extent as the laws of the U.S. Many
companies have encountered significant problems in protecting and
defending intellectual property rights in certain foreign
jurisdictions. The legal systems of some countries, particularly
developing countries, do not favor the enforcement of patents and
other intellectual property protection, especially those relating
to biotechnology and pharmaceuticals. This could make it difficult
for us to stop the infringement of our patents, if obtained, or the
misappropriation of our other intellectual property rights. For
example, many foreign countries have compulsory licensing laws
under which a patent owner must grant licenses to third parties
under certain circumstances. In addition, many countries limit the
enforceability of patents against third parties, including
government agencies or government contractors. In these countries,
patents may provide limited or no benefit. Patent protection must
ultimately be sought on a country-by-country basis, which is an
expensive and time-consuming process with uncertain outcomes.
Accordingly, we may choose not to seek patent protection in certain
countries, and we will not have the benefit of patent protection in
such countries.
An unfavorable outcome could require us or our licensors or
collaborators to cease using the related technology or developing
or commercializing our product candidates, or to attempt to license
rights to it from the prevailing party. Our business could be
harmed if the prevailing party does not offer us or our licensors
or collaborators a license on commercially reasonable terms or at
all. Even if we or our licensors or collaborators obtain a license,
it may be non-exclusive, thereby giving our competitors access to
the same technologies licensed to us or our licensors or
collaborators. In addition, we could be found liable for monetary
damages, including treble damages and attorneys’ fees, if we
are found to have willfully infringed a patent. A finding of
infringement could prevent us from commercializing our product
candidates or force us to cease some of our business operations,
which could materially harm our business.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be
compromised by disclosure during this type of litigation. There
could also be public announcements of the results of hearings,
motions or other interim proceedings or developments. If securities
analysts or investors perceive these results to be negative, it
could have a material adverse effect on the price of our common
stock.
Furthermore, proceedings to enforce our patent rights in foreign
jurisdictions could result in substantial costs and divert our
efforts and attention from other aspects of our business, could put
our patents at risk of being invalidated or interpreted narrowly,
could put our patent applications at risk of not issuing and could
provoke third parties to assert claims against us. We may not
prevail in any lawsuits that we initiate and the damages or other
remedies awarded, if any, may not be commercially meaningful.
Accordingly, our efforts to enforce our intellectual property
rights around the world may be inadequate to obtain a significant
commercial advantage from the intellectual property that we develop
or license.
We are dependent, in part, on licensed intellectual property. If we
were to lose our rights to licensed intellectual property, we may
not be able to continue developing or commercializing our product
candidates, if approved. If we breach any of the agreements under
which we license the use, development and commercialization rights
to our product candidates or technology from third parties or, in
certain cases, we fail to meet certain development or payment
deadlines, we could lose license rights that are important to our
business.
For our PH10, PH94B and certain stem cell technologies, we are a
party to a number of license agreements under which we are granted
rights to intellectual properties that are or could become
important to our business, and we expect that we may need to enter
into additional license agreements in the future. Our existing
license agreements impose, and we expect that future license
agreements will impose on us, various development, regulatory
and/or commercial diligence obligations, payment of fees,
milestones and/or royalties and other obligations. If we fail to
comply with our obligations under these agreements, or we are
subject to a bankruptcy, the licensor may have the right to
terminate the license, in which event we would not be able to
develop or market products, which could be covered by the license.
Our business could suffer, for example, if any current or future
licenses terminate, if the licensors fail to abide by the terms of
the license, if the licensed patents or other rights are found to
be invalid or unenforceable, or if we are unable to enter into
necessary licenses on acceptable terms.
As we have done previously, we may need to obtain licenses from
third parties to advance our research or allow commercialization of
our product candidates, and we cannot provide any assurances that
third-party patents do not exist that might be enforced against our
current product candidates or future products in the absence of
such a license. We may fail to obtain any of these licenses on
commercially reasonable terms, if at all. Even if we are able to
obtain a license, it may be non-exclusive, thereby giving our
competitors access to the same technologies licensed to us. In that
event, we may be required to expend significant time and resources
to develop or license replacement technology. If we are unable to
do so, we may be unable to develop or commercialize the affected
product candidates, which could materially harm our business and
the third parties owning such intellectual property rights could
seek either an injunction prohibiting our sales, or, with respect
to our sales, an obligation on our part to pay royalties and/or
other forms of compensation.
Licensing of intellectual property is of critical importance to our
business and involves complex legal, business and scientific
issues. Disputes may arise between us and our licensors regarding
intellectual property subject to a license agreement,
including:
●
the
scope of rights granted under the license agreement and other
interpretation-related issues;
●
whether
and the extent to which our technology and processes infringe on
intellectual property of the licensor that is not subject to the
licensing agreement;
●
our
right to sublicense patent and other rights to third parties under
collaborative development relationships;
●
our
diligence obligations with respect to the use of the licensed
technology in relation to our development and commercialization of
our product candidates, and what activities satisfy those diligence
obligations; and
●
the
ownership of inventions and know-how resulting from the joint
creation or use of intellectual property by our licensors and us
and our partners.
If disputes over intellectual property that we have licensed
prevent or impair our ability to maintain our current licensing
arrangements on acceptable terms, we may be unable to successfully
develop and commercialize the affected product
candidates.
We have entered into several licenses, both in-license agreements
and out-license agreements, to support and leverage our various
stem cell technology-related programs. We may enter into additional
license(s) to third-party intellectual property that are necessary
or useful to our business. Our current licenses and any future
licenses that we may enter into impose various royalty payments,
milestone, and other obligations on us. For example, the licensor
may retain control over patent prosecution and maintenance under a
license agreement, in which case, we may not be able to adequately
influence patent prosecution or prevent inadvertent lapses of
coverage due to failure to pay maintenance fees. If we fail to
comply with any of our obligations under a current or future
license agreement, our licensor(s) may allege that we have breached
our license agreement and may accordingly seek to terminate our
license with them. In addition, future licensor(s) may decide to
terminate our license at will. Termination of any of our current or
future licenses could result in our loss of the right to use the
licensed intellectual property, which could materially adversely
affect our ability to develop and commercialize a product candidate
or product, if approved, as well as harm our competitive business
position and our business prospects.
In addition, if our licensors fail to abide by the terms of the
license, if the licensors fail to prevent infringement by third
parties, if the licensed patents or other rights are found to be
invalid or unenforceable, or if we are unable to enter into
necessary licenses on acceptable terms our business could
suffer.
Some intellectual property which we have licensed may have been
discovered through government funded programs and thus may be
subject to federal regulations such as “march-in”
rights, certain reporting requirements, and a preference for U.S.
industry. Compliance with such regulations may limit our exclusive
rights, subject us to expenditure of resources with respect to
reporting requirements, and limit our ability to contract with
non-U.S. manufacturers.
Some of the intellectual property rights we have licensed or will
license in the future may have been generated through the use of
U.S. government funding and may therefore be subject to certain
federal regulations. As a result, the U.S. government may have
certain rights to intellectual property embodied in our current or
future product candidates pursuant to the Bayh-Dole Act of 1980
(
Bayh-Dole
Act
). These U.S. government
rights in certain inventions developed under a government-funded
program include a non-exclusive, non-transferable, irrevocable
worldwide license to use inventions for any governmental
purpose.
In addition, the U.S. government has the right to require us to
grant exclusive, partially exclusive, or non-exclusive licenses to
any of these inventions to a third party if it determines that:
(i) adequate steps have not been taken to commercialize the
invention; (ii) government action is necessary to meet public
health or safety needs; or (iii) government action is
necessary to meet requirements for public use under federal
regulations (also referred to as “march-in rights”).
The U.S. government also has the right to take title to these
inventions if we fail, or the applicable licensor fails, to
disclose the invention to the government and fail to file an
application to register the intellectual property within specified
time limits. Also, the U.S. government may acquire title to these
inventions in any country in which a patent application is not
filed within specified time limits.
Intellectual property generated under a government funded program
is further subject to certain reporting requirements, compliance
with which may require us, or the applicable licensor, to expend
substantial resources. In addition, the U.S. government requires
that any products embodying the subject invention or produced
through the use of the subject invention be manufactured
substantially in the U.S. The manufacturing preference requirement
can be waived if the owner of the intellectual property can show
that reasonable but unsuccessful efforts have been made to grant
licenses on similar terms to potential licensees that would be
likely to manufacture substantially in the U.S. or that under the
circumstances domestic manufacture is not commercially feasible.
This preference for U.S. manufacturers may limit our ability to
contract with non-U.S. product manufacturers for products covered
by such intellectual property.
In the event we apply for additional U.S. government funding, and
we discover compounds or drug candidates as a result of such
funding, intellectual property rights to such discoveries may be
subject to the applicable provisions of the Bayh-Dole
Act.
If we do not obtain additional protection under the Hatch-Waxman
Amendments and similar foreign legislation by extending the patent
terms and obtaining data exclusivity for our product candidates,
our business may be materially harmed.
In the U.S., depending upon the timing, duration and specifics of
FDA marketing approval of our product candidates, one or more of
the U.S. patents we own or license may be eligible for limited
patent term restoration under the Drug Price Competition and Patent
Term Restoration Act of 1984, referred to as the Hatch-Waxman
Amendments. The Hatch-Waxman Amendments permit a patent restoration
term of up to five years as compensation for patent term lost
during product development and the FDA regulatory review process.
However, we may not be granted an extension because of, for
example, failing to apply within applicable deadlines, failing to
apply prior to expiration of relevant patents or otherwise failing
to satisfy applicable requirements. For example, we may not be
granted an extension, for example, if the active ingredient of
AV-101, PH94B or PH10 is used in another drug company’s
product candidate and that product candidate is the first to obtain
FDA approval.
Moreover, the applicable time period or the scope of patent
protection afforded could be less than we request. If we are unable
to obtain patent term extension or restoration or the term of any
such extension is less than we request, our competitors may obtain
approval of competing products following our patent expiration, and
our ability to generate revenues could be materially adversely
affected.
Similar kinds of patent term and regulatory and data protection
periods are available outside of the U.S. We will pursue such
opportunities to extend the exclusivity of our products, but we
cannot predict the availability of such exclusivity pathways or
that we will be successful in pursuing them.
Changes in U.S
.
patent law
could diminish the value of patents in general, thereby impairing
our ability to protect our products.
As is the case with other pharmaceutical and biotechnology
companies, our success is heavily dependent on intellectual
property, particularly patents. Obtaining and enforcing patents in
the biotechnology industry involve both technological and legal
complexity, and is therefore costly, time-consuming and inherently
uncertain. In addition, the U.S. in recent years enacted and is
currently implementing wide-ranging patent reform legislation: the
Leahy-Smith America Invents Act, referred to as the America Invents
Act. The America Invents Act includes a number of significant
changes to U.S. patent law. These include provisions that affect
the way patent applications will be prosecuted and may also affect
patent litigation. It is not yet clear what, if any, impact the
America Invents Act will have on the operation of our business.
However, the America Invents Act and its implementation could
increase the uncertainties and costs surrounding the prosecution of
our patent applications and the enforcement or defense of any
patents that may issue from our patent applications, all of which
could have a material adverse effect on our business and financial
condition.
In addition, recent U.S. Supreme Court rulings have narrowed the
scope of patent protection available in certain circumstances and
weakened the rights of patent owners in certain situations. The
full impact of these decisions is not yet known. For example, on
March 20, 2012 in
Mayo Collaborative Services,
DBA Mayo Medical Laboratories, et al. v. Prometheus Laboratories,
Inc.
, the Court held that
several claims drawn to measuring drug metabolite levels from
patient samples and correlating them to drug doses were not
patentable subject matter. The decision appears to impact
diagnostics patents that merely apply a law of nature via a series
of routine steps and it has created uncertainty around the ability
to obtain patent protection for certain inventions. Additionally,
on June 13, 2013 in
Association for Molecular
Pathology v. Myriad Genetics, Inc
., the Court held that claims to isolated genomic
DNA are not patentable, but claims to complementary DNA molecules
are patent eligible because they are not a natural product. The
effect of the decision on patents for other isolated natural
products is uncertain.
Additionally, on March 4, 2014, the USPTO issued a memorandum
to patent examiners providing guidance for examining claims that
recite laws of nature, natural phenomena or natural products under
the Myriad and Prometheus decisions. This guidance did not limit
the application of Myriad to DNA but, rather, applied the decision
to other natural products. Further, in 2015,
in
Ariosa Diagnostics, Inc. v.
Sequenom, Inc
., the Court of
Appeals for the Federal Circuit held that methods for detecting
fetal genetic defects were not patent eligible subject matter.
Other more recent court decisions and related USPTO examination
guidelines must be taken into account, particularly as they relate
to changes in what types of inventions are eligible for patent
protection. Foreign patent and intellectual property laws also are
evolving and are not predictable as to their impact on the Company
and other biopharmaceutical companies.
In addition to increasing uncertainty regarding our ability to
obtain future patents, this combination of events has created
uncertainty with respect to the value of patents, once obtained.
Depending on these and other decisions by the U.S. Congress, the
federal courts and the USPTO, the laws and regulations governing
patents could change in unpredictable ways that would weaken our
ability to obtain new patents or to enforce any patents that may
issue in the future.
We may be subject to damages resulting from claims that we or our
employees have wrongfully used or disclosed alleged trade secrets
of their former employers.
Certain of our current employees have been, and certain of our
future employees may have been, previously employed at other
biotechnology or pharmaceutical companies, including our
competitors or potential competitors. We also engage advisors and
consultants who are concurrently employed at universities or who
perform services for other entities.
Although we are not aware of any claims currently pending or
threatened against us, we may be subject to claims that we or our
employees, advisors or consultants have inadvertently or otherwise
used or disclosed intellectual property, including trade secrets or
other proprietary information, of a former employer or other third
party. We have and may in the future also be subject to claims that
an employee, advisor or consultant performed work for us that
conflicts with that person’s obligations to a third party,
such as an employer, and thus, that the third party has an
ownership interest in the intellectual property arising out of work
performed for us. Litigation may be necessary to defend against
these claims. Even if we are successful in defending against these
claims, litigation could result in substantial costs and be a
distraction to management. If we fail in defending such claims, in
addition to paying monetary claims, we may lose valuable
intellectual property rights or personnel. A loss of key personnel
or their work product could hamper or prevent our ability to
commercialize our product candidates, which would materially
adversely affect our commercial development efforts.
Numerous factors may limit any potential competitive advantage
provided by our intellectual property rights.
The degree of future protection afforded by our intellectual
property rights is uncertain because intellectual property rights
have limitations, and may not adequately protect our business,
provide a barrier to entry against our competitors or potential
competitors, or permit us to maintain our competitive advantage.
Moreover, if a third party has intellectual property rights that
cover the practice of our technology, we may not be able to fully
exercise or extract value from our intellectual property rights.
The following examples are illustrative:
●
others
may be able to develop and/or practice technology that is similar
to our technology or aspects of our technology but that is not
covered by the claims of patents, should such patents issue from
our patent applications;
●
we
might not have been the first to make the inventions covered by a
pending patent application that we own;
●
we
might not have been the first to file patent applications covering
an invention;
●
others
may independently develop similar or alternative technologies
without infringing our intellectual property rights;
●
pending
patent applications that we own or license may not lead to issued
patents;
●
patents,
if issued, that we own or license may not provide us with any
competitive advantages, or may be held invalid or unenforceable or
be narrowed, as a result of legal challenges by our
competitors;
●
third
parties may compete with us in jurisdictions where we do not pursue
and obtain patent protection;
●
we
may not be able to obtain and/or maintain necessary or useful
licenses on reasonable terms or at all; and
●
the
patents of others may have an adverse effect on our
business.
Should any of these events occur, they could significantly harm our
business and results of operations.
With regard to our stem cell technology, if, instead of identifying
DR candidates based on information available to us in the public
domain, we seek to in-license DR candidates from biotechnology,
medicinal chemistry and pharmaceutical companies, academic,
governmental and nonprofit research institutions, including the
NIH, or other third parties, there can be no assurances that we
will obtain material ownership or economic participation rights
over intellectual property we may derive from such licenses or
similar rights to the DR NCEs that we may produce and develop. If
we are unable to obtain ownership or substantial economic
participation rights over intellectual property related to DR NCEs
we produce and develop, our DR business may be adversely
affected.
Risks Related to our Securities
Market volatility may affect our stock price and the value of your
investment.
The market price for our common stock, similar to other
biopharmaceutical companies, is likely to be highly volatile. The
market price of our common stock may fluctuate significantly in
response to a number of factors, most of which we cannot control,
including, among others:
●
plans
for, progress of or results from nonclinical and clinical
development activities related to our product
candidates;
●
the
failure of the FDA or other regulatory authority to approve our
product candidates;
●
announcements
of new products, technologies, commercial relationships,
acquisitions or other events by us or our competitors;
●
the
success or failure of other CNS therapies;
●
regulatory
or legal developments in the U.S. and other countries;
●
announcements
regarding our intellectual property portfolio;
●
failure
of our product candidates, if approved, to achieve commercial
success;
●
fluctuations
in stock market prices and trading volumes of similar
companies;
●
general
market conditions and overall fluctuations in U.S. equity
markets;
●
variations
in our quarterly operating results;
●
changes
in our financial guidance or securities analysts’ estimates
of our financial performance;
●
changes
in accounting principles;
●
our
ability to raise additional capital and the terms on which we can
raise it;
●
sales
or purchases of large blocks of our common stock, including sales
or purchases by our executive officers, directors and significant
stockholders;
●
establishment of
short positions by holders or non-holders of our stock or
warrants;
●
additions
or departures of key personnel;
●
discussion
of us or our stock price by the press and by online investor
communities; and
●
other
risks and uncertainties described in these risk
factors.
Future sales and issuances of our common stock may cause our stock
price to decline.
Sales or issuances of a substantial number of shares of our common
stock in the public market, or the perception that such sales or
issuances are occurring or might occur, could significantly reduce
the market price of our common stock and impair our ability to
raise adequate capital through the sale of additional equity
securities.
The stock market in general, and small biopharmaceutical companies
like ours in particular, have frequently experienced significant
volatility in the market prices for securities that often has been
unrelated to the operating performance of the underlying companies.
These broad market and industry fluctuations may adversely affect
the market price of our common stock, regardless of our actual
operating performance. In certain situations in which the market
price of a stock has been volatile, holders of that stock have
instituted securities class action litigation against the company
that issued the stock. If any of our stockholders were to bring a
lawsuit against us, the defense and disposition of the lawsuit
could be costly and divert the time and attention of our management
and harm our operating results. Additionally, if the trading volume
of our common stock remains low and limited there will be an
increased level of volatility and you may not be able to generate a
return on your investment.
A portion of our total outstanding shares are restricted from
immediate resale but may be sold into the market in the near
future. Future sales of shares by existing stockholders could cause
our stock price to decline, even if our business is doing
well.
Sales of a substantial number of shares of our common stock in the
public market could occur at any time. These sales, or the
perception in the market that the holders of a large number of
shares intend to sell shares, could reduce the market price of our
common stock. Historically, there has been a limited public market
for shares of our common stock. Future sales and issuances of a
substantial number of shares of our common stock in the public
market, including shares issued upon the conversion of our Series A
Preferred, Series B Preferred or Series C Preferred, and the
exercise of outstanding options and warrants for common stock which
are issuable upon exercise, in the public market, or the perception
that these sales and issuances are occurring or might occur, could
significantly reduce the market price for our common stock and
impair our ability to raise adequate capital through the sale of
equity securities.
A limited number of institutional stockholders could limit your
ability to influence the outcome of key transactions, including
changes in control.
A limited number of institutional stockholders own a substantial
portion of our outstanding preferred stock, consisting of shares of
our Series A Preferred, Series B Preferred, and Series C Preferred,
all of which is convertible, at the option of the holders (but
subject to certain beneficial ownership restrictions), into a
substantial number of shares of our common
stock. Accordingly, should a few of these institutional
holders convert their shares of preferred stock into common stock,
such stockholders may exert influence over us and over the outcome
of any corporate actions requiring approval of holders of our
common stock, including the election of directors and amendments to
our organizational documents, such as increases in our authorized
shares of common stock, any merger, consolidation or sale of all or
substantially all of our assets or any other significant corporate
transactions. These stockholders may also delay or prevent a change
of control of the Company, even if such a change of control is
approved by our Board and would benefit our other stockholders.
Furthermore, the interests of such institutional stockholders may
not always coincide with your interests or the interests of other
common stockholders and an institutional holder may act in a manner
that advances its best interests and not necessarily those of other
stockholders.
If equity research analysts do not publish research or reports
about our business or if they issue unfavorable commentary or
downgrade our common stock, the price of our common stock could
decline.
The trading market for our common stock relies in part on the
research and reports that equity research analysts publish about us
and our business. We do not control these analysts. The price of
our common stock could decline if one or more equity research
analysts downgrade our common stock or if such analysts issue other
unfavorable commentary or cease publishing reports about us or our
business.
There may be additional issuances of shares of preferred stock in
the future.
Our Restated Articles of Incorporation, as amended
(the
Articles
), permit us to issue up to 10.0 million shares of
preferred stock. Our Board has authorized the issuance of (i)
500,000 shares of Series A Preferred, all of which shares are
issued and outstanding at September 30, 2019; (ii) 4.0 million
shares of Series B 10% Convertible Preferred stock, of which
approximately 1.2 million shares remain issued and outstanding at
September 30, 2019; and (iii) 3.0 million shares of Series C
Convertible Preferred Stock, of which approximately 2.3 million
shares are issued and outstanding at September 30, 2019. Our Board
could authorize the issuance of additional series of preferred
stock in the future and such preferred stock could grant holders
preferred rights to our assets upon liquidation, the right to
receive dividends before dividends would be declared to holders of
our common stock, and the right to the redemption of such shares,
possibly together with a premium, prior to the redemption of the
common stock. In the event and to the extent that we do issue
additional preferred stock in the future, the rights of holders of
our common stock could be impaired thereby, including without
limitation, with respect to liquidation.
We do not intend to pay dividends on our common stock and,
consequently, our stockholders’ ability to achieve a return
on their investment will depend on appreciation in the price of our
common stock.
We have never declared or paid any cash dividend on our common
stock and do not currently intend to do so in the foreseeable
future. We currently anticipate that we will retain future earnings
for the development, operation and expansion of our business and do
not anticipate declaring or paying any cash dividends in the
foreseeable future. Therefore, the success of an investment in
shares of our common stock will depend upon any future appreciation
in their value. There is no guarantee that shares of our common
stock will appreciate in value or even maintain the price at which
our stockholders purchased them.
We incur significant costs to ensure compliance with corporate
governance, federal securities law and accounting
requirements.
We are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (
Exchange
Act
), which requires that we
file annual, quarterly and current reports with respect to our
business and financial condition, and the rules and regulations
implemented by the SEC, the Sarbanes-Oxley Act of 2002, the
Dodd-Frank Act, and the Public Company Accounting Oversight Board,
each of which imposes additional reporting and other obligations on
public companies. We have incurred and will continue to
incur significant costs to comply with these public company
reporting requirements, including accounting and related audit
costs, legal costs to comply with corporate governance requirements
and other costs of operating as a public company. These legal and
financial compliance costs will continue to require us to divert a
significant amount of resources that we could otherwise use to
achieve our research and development and other strategic
objectives.
The filing and internal control reporting requirements imposed by
federal securities laws, rules and regulations on companies that
are not “smaller reporting companies” under federal
securities laws are rigorous and, once we are no longer a smaller
reporting company, we may not be able to meet them, resulting in a
possible decline in the price of our common stock and our inability
to obtain future financing. Certain of these requirements may
require us to carry out activities we have not done previously and
complying with such requirements may divert management’s
attention from other business concerns, which could have a material
adverse effect on our business, results of operations, financial
condition and cash flows. Any failure to adequately comply with
applicable federal securities laws, rules or regulations could
subject us to fines or regulatory actions, which may materially
adversely affect our business, results of operations and financial
condition.
In addition, changing laws, regulations and standards relating to
corporate governance and public disclosure are creating uncertainty
for public companies, increasing legal and financial compliance
costs and making some activities more time consuming. These laws,
regulations and standards are subject to varying interpretations,
in many cases due to their lack of specificity, and, as a result,
their application in practice may evolve over time as new guidance
is provided by regulatory and governing bodies. This could result
in continuing uncertainty regarding compliance matters and higher
costs necessitated by ongoing revisions to disclosure and
governance practices. We will continue to invest resources to
comply with evolving laws, regulations and standards, however this
investment may result in increased general and administrative
expenses and a diversion of management’s time and attention
from revenue-generating activities to compliance activities. If our
efforts to comply with new laws, regulations and standards differ
from the activities intended by regulatory or governing bodies due
to ambiguities related to their application and practice,
regulatory authorities may initiate legal proceedings against us
and our business may be adversely affected.
Item 2. Unreg
i
stered Sales of Equity Securities and Use of
Proceeds
Common Stock and Warrants Issued in Fall 2019 Private
Placement
Between
October 30, 2019 and November 6, 2019, in a self-placed private
placement and pursuant to subscription agreements from accredited
investors, we sold to such investors units, at a purchase price of
$1.00 per unit, consisting of an aggregate of 600,000 unregistered
shares of our common stock and warrants, exercisable through
November 1, 2023, to purchase 300,000 unregistered shares of our
common stock at an exercise price of $2.00 per share. The
purchasers of the units have no registration rights with respect to
the shares of common stock, warrants or the shares of common stock
issuable upon exercise of the warrants comprising the units sold.
The warrants are not exercisable prior to six months and one day
following issuance. We received aggregate cash proceeds of $600,000
from the sale of the units.
Proceeds from the offering will be used for general corporate
purposes. The sales described above were made in reliance
on Section 4(a)(2) of the Securities Act as transactions by an
issuer not involving any public offering, Regulation D of the
Securities Act, and/or Section 3(a)(9) under the Securities Act. In
these transactions, certain inquiries were made by the Company to
establish that such sales qualified for such exemption from the
registration requirements. In particular, the Company confirmed
that, with respect to the exemption claimed under Section 4(a)(2)
of the Securities Act, that (i) all offers of sales and sales were
made by personal contact from officers or directors of the Company
or other persons closely associated with the Company, (ii) each
investor made representations that he or she was an accredited
investor as defined in Rule 501 of Regulation D under the
Securities Act (and the Company had no reason to believe that such
representations were incorrect), (iii) each purchaser gave
assurance of investment intent, and (iv) offers and sales within
the offering were made only to a limited number of
persons.
Item 3. Defaults Upon Senior Securities
None.
Item 6. EXHIBITS
|
Exhibit
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Number
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Description
|
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Form of
Subscription Agreement for Fall 2019 Private
Placement
|
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|
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Form of Warrant for
Fall 2019 Private Placement
|
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Certification of the Principal Executive Officer required by
Rule 13a-14(a) under the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
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Certification of the Principal Financial Officer required by
Rule 13a-14(a) under the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
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Certification of the Principal Executive and Financial Officers
required by Rule 13a-14(b) and Section 1350 of
Chapter 63 of Title 18 of the United States Code, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
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101.INS
|
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XBRL Instance Document
|
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101.SCH
|
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XBRL Taxonomy Extension Schema
|
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101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
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101.DEF
|
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XBRL Taxonomy Extension Definition Linkbase
|
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101.LAB
|
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XBRL Taxonomy Extension Label Linkbase
|
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101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
SIG
N
ATURES
Pursuant to the requirements 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.
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VISTAGEN THERAPEUTICS, INC.
/s/
Shawn K. Singh
Shawn K. Singh
Chief Executive Officer (Principal Executive Officer)
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/s/
Jerrold D. Dotson
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Jerrold D. Dotson
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Chief Financial Officer (Principal Financial and Accounting
Officer)
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Dated: November 6, 2019
-64-
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Condensed Consolidated Financial Statements (unaudited)Note 1. Description Of BusinessNote 2. Basis Of PresentationNote 3. Summary Of Significant Accounting PoliciesNote 4. Prepaid Expenses and Other Current AssetsNote 5. Property and EquipmentNote 6. Accrued ExpensesNote 7. Notes PayableNote 8. Capital StockNote 9. Related Party TransactionsNote 10. Commitments and ContingenciesNote 11. Subsequent EventsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 4. Controls and ProceduresPart Ii: Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 6. Exhibits