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, 2020
or
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from
to
.
Commission File Number: 001-37761
VistaGen Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
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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)
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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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such
files). Yes
☒
No
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer
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[ ]
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Accelerated filer
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[ ]
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Non-Accelerated filer
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[ ]
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Smaller reporting company
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[X]
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Emerging growth company
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[ ]
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
[ ]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
As of November 12, 2020, 73,998,057 shares of the
registrant’s common stock, $0.001 par value, were issued and
outstanding.
VistaGen Therapeutics, Inc.
Quarterly Report on Form 10-Q
for the Quarter Ended September 30, 2020
TABLE OF CONT
E
NTS
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Page
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1
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2
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3
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4
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5
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22
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40
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41
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41
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79
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79
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79
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80
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PART I. FINANCI
A
L
INFORMATION
Item 1. Condensed Consolidated Financial Statements
(Unaudited)
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED
BALANCE SHEETS
(Amounts in Dollars, except share amounts)
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September
30,
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March 31,
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2020
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2020
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(Unaudited)
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(Note
2)
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ASSETS
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Current
assets:
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Cash and cash
equivalents
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$
15,399,500
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$
1,355,100
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Prepaid expenses and
other current assets
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455,700
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225,100
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Deferred contract
acquisition costs - current portion
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116,900
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-
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Total current
assets
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15,972,100
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1,580,200
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Property and equipment,
net
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257,600
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209,600
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Right of use asset -
operating lease
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3,403,000
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3,579,600
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Deferred offering
costs
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268,500
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355,100
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Deferred contract
acquisition cost - non-current portion
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321,700
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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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$
20,270,700
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$
5,772,300
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LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
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Current
liabilities:
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Accounts
payable
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$
1,176,400
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$
1,836,600
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Accrued
expenses
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186,900
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561,500
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Current notes payable,
including accrued interest
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352,600
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56,500
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Deferred revenue -
current portion
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1,244,000
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-
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Operating lease
obligation - current portion
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338,500
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313,400
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Financing lease
obligation - current portion
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3,500
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3,300
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Total current
liabilities
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3,301,900
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2,771,300
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Non-current
liabilities:
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Non-current portion of
notes payable
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87,300
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-
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Accrued dividends on
Series B Preferred Stock
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5,694,700
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5,011,800
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Deferred revenue -
non-current portion
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3,422,000
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-
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Operating lease
obligation - non-current portion
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3,540,900
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3,715,600
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Financing lease
obligation - non-current portion
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1,300
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3,000
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Total non-current
liabilities
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12,746,200
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8,730,400
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Total
liabilities
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16,048,100
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11,501,700
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Commitments and
contingencies (Note 10)
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Stockholders’
equity (deficit):
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Preferred stock, $0.001
par value; 10,000,000 shares authorized at September 30, 2020 and
March 31, 2020:
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Series A Preferred,
500,000 shares authorized, issued and outstanding at September 30,
2020 and March 31, 2020
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500
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500
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Series B Preferred;
4,000,000 shares authorized at September 30, 2020 and March 31,
2020; 1,160,240 shares
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issued and outstanding
at September 30, 2020 and March 31, 2020
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1,200
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1,200
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Series C Preferred;
3,000,000 shares authorized at September 30, 2020 and March 31,
2020; 2,318,012 shares
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issued and outstanding
at September 30, 2020 and March 31, 2020
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2,300
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2,300
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Common stock,
$0.001 par value; 175,000,000 shares authorized at September 30,
2020 and March 31, 2020;
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74,133,722 and
49,348,707 shares issued and outstanding at September 30, 2020 and
March 31, 2020, respectively
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74,100
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49,300
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Additional paid-in
capital
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216,444,600
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200,092,800
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Treasury stock, at
cost, 135,665 shares of common stock held at September 30, 2020 and
March 31, 2020
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(3,968,100
)
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(3,968,100
)
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Accumulated
deficit
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(208,332,000
)
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(201,907,400
)
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Total
stockholders’ equity (deficit)
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4,222,600
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(5,729,400
)
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Total liabilities and
stockholders’ equity (deficit)
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$
20,270,700
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$
5,772,300
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See accompanying notes to Condensed Consolidated Financial
Statements.
VISTAGEN T
H
ERAPEUTICS, 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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2020
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2019
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2020
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2019
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Sublicense
revenue
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$
334,000
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$
-
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$
334,000
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$
-
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Total
revenues
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334,000
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-
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334,000
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-
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Operating
expenses:
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Research
and development
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2,358,200
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4,205,200
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4,089,400
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8,519,100
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General
and administrative
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1,269,500
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1,146,100
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2,660,100
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3,056,200
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Total
operating expenses
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3,627,700
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5,351,300
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6,749,500
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11,575,300
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Loss
from operations
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(3,293,700
)
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(5,351,300
)
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(6,415,500
)
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(11,575,300
)
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Other
income (expenses), net:
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Interest
income (expense), net
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(3,900
)
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15,400
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(7,100
)
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31,900
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Other
income
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-
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-
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600
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-
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Loss
before income taxes
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(3,297,600
)
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(5,335,900
)
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(6,422,000
)
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(11,543,400
)
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Income
taxes
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(200
)
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-
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(2,600
)
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(2,400
)
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Net
loss and comprehensive loss
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$
(3,297,800
)
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$
(5,335,900
)
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$
(6,424,600
)
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$
(11,545,800
)
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Accrued
dividends on Series B Preferred stock
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(347,200
)
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(313,800
)
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(683,000
)
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(616,300
)
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Net
loss attributable to common stockholders
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$
(3,645,000
)
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$
(5,649,700
)
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$
(7,107,600
)
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$
(12,162,100
)
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Basic
and diluted net loss attributable to common
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stockholders
per common share
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$
(0.05
)
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$
(0.13
)
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$
(0.12
)
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$
(0.29
)
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Weighted
average shares used in computing
basic
and diluted net loss
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attributable
to common
stockholders
per common share
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67,082,935
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42,622,965
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59,245,209
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42,622,965
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See accompanying notes to Condensed Consolidated Financial
Statements.
VISTAGEN THERAPE
U
TICS,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Dollars)
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Six Months Ended
September 30,
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2020
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2019
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Cash
flows from operating activities:
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Net
loss
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$
(6,424,600
)
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$
(11,545,800
)
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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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50,900
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52,100
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Stock-based
compensation
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1,085,500
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1,456,500
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Amortization
of fair value of common stock issued for services
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-
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92,100
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Amortization
of fair value of warrants issued for services
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-
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13,800
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Changes
in operating assets and liabilities:
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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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91,500
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(229,200
)
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Right
of use asset - operating lease
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176,700
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164,900
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Operating
lease liability
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(149,700
)
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(127,100
)
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Deferred
sublicense revenue, net of deferred contract acquisition
costs
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4,352,400
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-
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Accounts
payable and accrued expenses
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(985,700
)
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924,500
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Net
cash used in operating activities
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(1,803,000
)
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(8,898,200
)
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Cash
flows from property and investing activities:
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Purchases
of manufacturing and other equipment
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(98,800
)
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-
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Net
cash used in investing activities
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(98,800
)
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-
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Cash
flows from financing activities:
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Net
proceeds from issuance of common stock and warrants, including
Units
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12,961,300
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-
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Net
proceeds from exercise of warrants
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84,600
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-
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Net
proceeds from sale of common stock under equity line
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2,841,600
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-
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Proceeds
from issuance of note under Payroll Protection Plan
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224,400
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-
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Repayment
of capital lease obligations
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(1,600
)
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(1,500
)
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Repayment
of notes payable
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(164,100
)
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(128,200
)
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Net
cash provided by (used in) financing activities
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15,946,200
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(129,700
)
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Net
increase (decrease) in cash and cash equivalents
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14,044,400
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(9,027,900
)
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Cash
and cash equivalents at beginning of period
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1,355,100
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13,100,300
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Cash
and cash equivalents at end of period
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$
15,399,500
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$
4,072,400
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Supplemental
disclosure of noncash activities:
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Insurance
premiums settled by issuing note payable
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$
322,200
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$
230,200
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Accrued
dividends on Series B Preferred
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$
683,000
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$
616,300
|
See accompanying notes to Condensed Consolidated Financial
Statements.
VISTAGEN THE
R
APEUTICS,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY (DEFICIT)
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND
2020
(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
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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
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Stock
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Deficit
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(Deficit)
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Balances at March 31, 2019
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500,000
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$
500
|
1,160,240
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$
1,200
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2,318,012
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$
2,300
|
42,758,630
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$
42,800
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$
192,129,900
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$
(3,968,100
)
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$
(181,133,400
)
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$
7,075,200
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Accrued dividends on Series B Preferred stock
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-
|
-
|
-
|
-
|
-
|
-
|
-
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-
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(302,500
)
|
-
|
-
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(302,500
)
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Stock-based compensation expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,063,000
|
-
|
-
|
1,063,000
|
|
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|
Net loss for the quarter ended June 30, 2019
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(6,209,900
)
|
(6,209,900
)
|
|
|
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|
|
|
|
|
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|
|
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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
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2020
|
500,000
|
$
500
|
1,160,240
|
$
1,200
|
2,318,012
|
$
2,300
|
49,348,707
|
$
49,300
|
$
200,092,800
|
$
(3,968,100
)
|
$
(201,907,400
)
|
$
(5,729,400
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
sale of units of common stock and warrants
for cash in
private placement
|
-
|
-
|
-
|
-
|
-
|
-
|
125,000
|
200
|
49,800
|
-
|
-
|
50,000
|
|
Net proceeds from sale of common stock under equity
line
|
-
|
-
|
-
|
-
|
-
|
-
|
6,201,995
|
6,200
|
2,741,300
|
-
|
-
|
2,747,500
|
|
Issuance of common stock at fair value for professional
services
|
-
|
-
|
-
|
-
|
-
|
-
|
233,645
|
200
|
124,800
|
-
|
-
|
125,000
|
|
Sale of common
stock pursuant to 2019 Employee Stock
Purchase
Plan
|
-
|
-
|
-
|
-
|
-
|
-
|
28,125
|
-
|
12,600
|
-
|
-
|
12,600
|
|
Expenses
related to S-3 registration statement for shares
underlying
outstanding warrants
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(29,400
)
|
-
|
-
|
(29,400
)
|
|
Accrued dividends on Series B Preferred stock
|
|
|
|
|
|
|
-
|
-
|
(335,800
)
|
-
|
-
|
(335,800
)
|
|
Stock-based compensation expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
674,600
|
-
|
-
|
674,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the quarter ended June 30, 2020
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(3,126,800
)
|
(3,126,800
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2020
|
500,000
|
500
|
1,160,240
|
1,200
|
2,318,012
|
2,300
|
55,937,472
|
55,900
|
203,330,700
|
(3,968,100
)
|
(205,034,200
)
|
(5,611,700
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from sale of common stock in public
offering
|
-
|
-
|
-
|
-
|
-
|
-
|
17,868,250
|
17,900
|
12,887,200
|
-
|
-
|
12,905,100
|
|
Net proceeds from exercise of warrants
|
-
|
-
|
-
|
-
|
-
|
-
|
228,000
|
200
|
113,800
|
-
|
-
|
114,000
|
|
Net proceeds from sale of common stock under equity
line
|
-
|
-
|
-
|
-
|
-
|
-
|
100,000
|
100
|
49,200
|
-
|
-
|
49,300
|
|
Accrued dividends on Series B Preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(347,200
)
|
-
|
-
|
(347,200
)
|
|
Stock-based compensation expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
410,900
|
-
|
-
|
410,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the quarter ended September 30, 2020
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(3,297,800
)
|
(3,297,800
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2020
|
500,000
|
$
500
|
1,160,240
|
$
1,200
|
2,318,012
|
$
2,300
|
74,133,722
|
$
74,100
|
$
216,444,600
|
$
(3,968,100
)
|
$
(208,332,000
)
|
$
4,222,600
|
See accompanying notes to Condensed Consolidated Financial
Statements.
VISTAG
E
N 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 and commercializing differentiated new
generation medications that go beyond the current standard of care
for anxiety, depression and other central nervous system
(
CNS
) disorders. Our pipeline includes three CNS drug
candidates, each with a differentiated mechanism of action, an
exceptional safety profile in all clinical studies to date, and
therapeutic potential in multiple CNS markets.
Additionally,
our subsidiary, VistaStem Therapeutics (
VistaStem
), has developed
CardioSafe
3D™, a customized
human heart cell-based cardiac bioassay system, to assess and
develop potential small molecule new chemical entities
(NCEs
) for our CNS pipeline, or for
out-licensing.
We aim to become a
fully-integrated biopharmaceutical company that develops and
commercializes innovative CNS therapies for large and growing
mental health and neurology markets where we believe current
treatments are inadequate to meet the underserved needs of millions
of patients and their caregivers worldwide.
Our Product Candidates
PH94B
is an innovative synthetic neuroactive pherine nasal spray with
therapeutic potential in a wide range of mental health disorders
involving anxiety or phobia. Self-administered in microgram-level
doses, PH94B produces rapid onset anti-anxiety effects and does not
require systemic uptake and distribution to do so. We are currently
preparing PH94B for pivotal Phase 3 development as a potential
acute treatment of anxiety in adults with Social Anxiety Disorder
(
SAD
). With its rapid-onset
pharmacology, lack of systemic exposure and sedation, and its
excellent safety profile to date, we believe PH94B has potential to
displace benzodiazepines in the drug treatment paradigm for anxiety
disorders. In addition to SAD, we believe PH94B also has potential
as a novel treatment for adjustment disorder, postpartum anxiety,
post-traumatic stress disorder, preprocedural anxiety, panic and
many other anxiety-related disorders. The FDA has granted Fast
Track designation (
FTD
) for
development of PH94B as a potential acute treatment of anxiety in
adults with SAD, which we believe to be the first such FTD granted
by the FDA for a drug candidate for treatment of SAD.
PH10 is
an innovative synthetic neuroactive pherine delivered intranasally
with therapeutic potential in a wide range of neuropsychiatric
indications involving depression. Self-administered in
microgram-level doses, and in contrast to currently available oral
antidepressants, PH10 has potential to produce rapid-onset
antidepressant effects without requiring systemic uptake and
distribution. Based on its differentiated pharmacology and a
successful exploratory Phase 2A study of PH10 in patients with
major depressive disorder (
MDD
), we are initially developing PH10
as a potential new generation rapid-onset stand-alone treatment of
MDD. We believe PH10 also has potential as a novel rapid-onset
treatment for postpartum depression, treatment-resistant depression
and suicidal ideation.
AV-101
is a novel, oral prodrug that targets the NMDAR
(
N-methyl-D-aspartate receptor
), an
ionotropic glutamate receptor in the brain. Abnormal NMDAR function
is associated with numerous CNS diseases and disorders.
AV-101’s active metabolite, 7-chloro-kynurenic acid
(
7-Cl-KYNA
), is a potent
and selective full antagonist of the glycine coagonist site of the
NMDAR that inhibits the function of the NMDAR, but does not block
the NMDAR like ketamine and other NMDAR antagonists. We have
demonstrated in clinical trials that AV-101 is orally-available,
well-tolerated and does not cause dissociative or hallucinogenic
psychological side effects or safety concerns similar to those that
may be caused by ketamine or other NMDAR antagonists. With its
exceptionally few side effects and excellent safety profile, we
believe AV-101 has potential to be an oral, new generation
treatment for multiple CNS indications involving abnormal NMDAR
function and where current the current standard of care is
inadequate to meet underserved patient needs. The FDA has granted
FTD for development of AV-101 as both a potential adjunctive
treatment for MDD and as a non-opioid treatment for neuropathic
pain. Based on successful preclinical studies of AV-101 in
combination with probenecid, we are assessing potential Phase 1
development of the combination to enable potential exploratory
Phase 2A studies in MDD, neuropathic pain, dyskinesia associated
with levodopa therapy for Parkinson’s disease, epilepsy
and/or suicidal ideation.
VistaStem
is applying pluripotent stem cell (
hPSC
) technology and
CardioSafe 3D
, our customized cardiac
bioassay system, to discover and develop, novel small molecule NCEs
for our CNS pipeline or for out-licensing.
To advance potential cell therapy
(
CT
) and regenerative medicine (
RM
) applications of VistaStem’s hPSC
technologies related to heart cells, we have licensed to BlueRock
Therapeutics LP, a next generation CT/RM company formed jointly by
Bayer AG and Versant Ventures and now a subsidiary of Bayer AG,
rights to develop and commercialize certain proprietary
technologies relating to the production of cardiac stem cells for
the treatment of heart disease. As a result of its acquisition of
BlueRock Therapeutics LP in 2019, Bayer AG now holds such rights
(the
Bayer
Agreement
). The Bayer Agreement
is
described more completely in Note 11,
Sublicensing and Collaboration
Agreements
.
Our
product candidates are protected through a combination of patents,
trade secrets, and proprietary know‑how. If approved, they
may also be eligible for periods of regulatory exclusivity. Our
intellectual property portfolio includes issued U.S. and foreign
patents, as well as U.S. and foreign patent
applications.
Subsidiaries
As noted above, VistaStem Therapeutics, a California corporation,
is our wholly-owned subsidiary. Our Condensed Consolidated
Financial Statements in this Quarterly Report on Form 10-Q
(
Report
) also include the accounts of VistaStem and
VistaStem’s two wholly-owned inactive subsidiaries, Artemis
Neuroscience, Inc., a Maryland corporation, and VistaStem Canada,
Inc., a corporation organized under the laws of Ontario,
Canada.
Note 2. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial
Statements have been prepared in accordance with accounting
principles generally accepted in the United States
(
U.S.
GAAP
) for interim financial
information and with the instructions to Form 10-Q and
Rule 8-03 of Regulation S-X. Accordingly, they do not contain
all of the information and footnotes required for complete
consolidated financial statements. In the opinion of management,
the accompanying unaudited Condensed Consolidated Financial
Statements reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly our interim
financial information. The accompanying Condensed Consolidated
Balance Sheet at March 31, 2020 has been derived from our audited
consolidated financial statements at that date but does not include
all disclosures required by U.S. GAAP. The operating results
for the three and six months ended September 30, 2020 are not
necessarily indicative of the operating results to be expected for
our fiscal year ending March 31, 2021, or for any other future
interim or other period.
The accompanying unaudited Condensed Consolidated Financial
Statements and notes to the Condensed Consolidated Financial
Statements contained in this Report should be read in conjunction
with our audited Consolidated Financial Statements for our fiscal
year ended March 31, 2020 contained in our Annual Report on Form
10-K, as filed with the Securities and Exchange Commission
(
SEC
) on June 29, 2020.
The accompanying unaudited Condensed Consolidated Financial
Statements have been prepared assuming we will continue as a going
concern. As a clinical-stage biopharmaceutical company having not
yet developed commercial products or achieved sustainable revenues,
we have experienced recurring losses and negative cash flows from
operations resulting in a deficit of approximately $208.3 million
accumulated from inception (May 1998) through September 30, 2020.
We expect losses and negative cash flows from operations to
continue for the foreseeable future as we engage in further
development of PH94B, PH10 and AV-101, execute our drug rescue
programs and pursue potential drug development and regenerative
medicine opportunities.
Since our inception in May 1998 through September 30, 2020, we have
financed our operations and technology acquisitions primarily
through the issuance and sale of our equity and debt securities for
cash proceeds of approximately $99.2 million, as well as from an
aggregate of approximately $22.7 million of government research
grant awards (excluding the fair market value of government
sponsored and funded clinical trials), strategic collaboration
payments and intellectual property licensing, and other revenues.
Additionally, we have issued equity securities with an approximate
value at issuance of $38.2 million in noncash acquisitions of
product licenses and in settlements of certain liabilities,
including liabilities for professional services rendered to us or
as compensation for such services.
Recent Developments
At
September 30, 2020, we had cash and cash equivalents of
approximately $15.4 million. As described more completely in Note
8,
Capital
Stock
, in August 2020, we
entered into an underwriting agreement (the
Underwriting
Agreement
) pursuant to which we
sold, in an underwritten public offering (the
August 2020 Public
Offering
), an aggregate of
15,625,000 shares (the
Shares
) of our common stock for a public offering price
of $0.80 per Share, resulting in gross proceeds to us of
$12,500,000. Under the terms of the Underwriting Agreement, we
granted to the underwriter an over-allotment option
(the
Over-Allotment
Option
) to purchase up to an
additional 2,343,750 Shares (the
Option
Shares
) at a public offering
price of $0.80 per Option Share. The underwriter exercised the
Over-Allotment Option with respect to 2,243,250 Option Shares
(the
Exercised Option
Shares
), resulting in
additional gross proceeds to us of $1,794,600. Net proceeds to us
from the sale of the Shares and the Exercised Option Shares, after
deducting underwriting discounts and commissions and offering
expenses payable by us, were approximately $12.9
million.
As more completely described in Note 11,
Sublicensing and
Collaboration Agreements
, in June 2020, we entered into a
strategic licensing and collaboration agreement for the clinical
development and commercialization of PH94B for acute treatment of
anxiety in adults with SAD and other potential anxiety-related
disorders (the
EverInsight
Agreement
), with
EverInsight Therapeutics Inc.,
(
EverInsight
),
a biopharmaceutical company focused on
developing and commercializing transformative pharmaceutical
products for patients in Greater China and other parts of
Asia,
and funded by CBC Group, a global healthcare-focused
venture capital firm. In October 2020, it was announced that
EverInsight is to merge with AffaMed Therapeutics, also funded by
CBC Group, which as a combined, complementary entity will focus on
developing and commercializing therapeutics to address
ophthalmologic and CNS disorders in Greater China and beyond.
Under the terms of the
EverInsight Agreement, EverInsight agreed to make a non-dilutive
upfront license payment of $5.0 million to us, which we received in
August 2020. Upon successful development and commercialization of
PH94B in EverInsight’s territory, we are eligible to receive
up to $172 million in additional development and commercial
milestone payments, plus royalties on commercial sales in the
licensed territory. The $5.0 million upfront license payment
resulted in net cash proceeds to us of approximately $4.655 million
after the sublicense payment we agreed to make to Pherin
Pharmaceuticals, Inc. (
Pherin
)
pursuant to our PH94B license from Pherin, and payment for
consulting services related to the EverInsight
Agreement.
As more completely described in Note 8,
Capital
Stock
, on March 24, 2020, we
entered into a purchase agreement and a registration rights
agreement with Lincoln Park Capital Fund (
Lincoln
Park
) pursuant to which Lincoln
Park committed to purchase up to $10,250,000 of our common stock at
market-based prices over a period of 24 months (the
LPC
Agreement
). To satisfy our
obligations under the registration rights agreement, we filed a
Registration Statement on Form S-1 (the
LPC Registration
Statement
) with the Securities
and Exchange Commission (the
SEC
) on March 31, 2020, which the SEC declared
effective on April 14, 2020 (Registration No. 333-237514).
Subsequent to the effectiveness of the LPC Registration Statement,
through September 30, 2020, we sold 6,301,995 registered shares of
our common stock to Lincoln Park and received gross cash proceeds
of $2,891,200.
Going Concern
Although the transactions described above have generated
approximately $20.0 million in net cash proceeds to us between
April 1, 2020 and the date of this Report, we believe it is
probable that our cash position at September 30, 2020, which
reflects such net proceeds, will not be sufficient to fund our
planned operations for the twelve months following the issuance of
these financial statements, which raises substantial doubt that we
can continue as a going concern. During the next twelve months,
subject to securing appropriate and adequate additional financing,
we plan to (i) prepare for and launch
a pivotal
Phase 3 clinical trial of PH94B for acute
treatment of anxiety in adult patients with SAD, (ii) prepare for
and launch a small exploratory
Phase 2A study of PH94B for
acute treatment of adult patients with adjustment disorder, (iii)
prepare for and potentially launch small exploratory Phase 2A
clinical studies of PH94B in postpartum anxiety, post-traumatic
stress disorder and/or pre-procedural (i.e. pre-MRI) anxiety, (iv)
assess and potentially launch a Phase 1 study of AV-101 in
combination with probenecid to enable exploratory Phase 2A
development of the combination for treatment of CNS disorders,
and (v) conduct several nonclinical
studies involving PH94B, PH10 and AV-101. When necessary and
advantageous, we plan to raise additional capital through the sale
of our equity securities in one or more (i) private placements to
accredited investors, (ii) public offerings and/or (iii) in
strategic licensing and development collaborations involving one or
more of our drug candidates in markets outside the United States,
similar to the EverInsight Agreement. Subject to certain
restrictions, our Registration Statement on Form S-3 (Registration
No. 333-234025) (the
S-3 Registration
Statement
), which became
effective on October 7, 2019 and was used to register the Shares
and the Exercised Option Shares sold in the August 2020 Public
Offering, remains available for future sales of our equity
securities in one or more public offerings from time to time. While
we may make additional sales of our equity securities under the S-3
Registration Statement, we do not have an obligation to do so.
Further, at September 30, 2020 and through the date of this Report,
there are approximately 2.04 million registered shares of our
common stock remaining available for sale under the LPC Agreement.
We have no obligation to sell any additional shares to LPC under
the LPC Agreement.
As we have been in the past, we expect that, when and as necessary,
we will be successful in raising additional capital from the sale
of our equity securities either in one or more public offerings or
in one or more private placement transactions with individual
accredited investors and institutions. In addition to the potential
sale of our equity securities, we may also seek to enter research,
development and/or commercialization collaborations similar to the
EverInsight Agreement and the Bayer Agreement that could generate
revenue or provide funding, including non-dilutive funding, for
development of one or more of our CNS product candidate programs.
We may also seek additional government grant awards or agreements
similar to our prior agreement with the U.S. National Institutes of
Health (
NIH
), Baylor University and the U.S. Department of
Veterans Affairs in connection with certain government-sponsored
studies of AV-101. Such strategic collaborations may provide
non-dilutive resources to advance our strategic initiatives while
reducing a portion of our future cash outlays and working capital
requirements. We may also pursue intellectual property arrangements
similar to the EverInsight Agreement and the Bayer Agreement with
other parties. Although we may seek additional collaborations that
could generate revenue and/or provide non-dilutive funding for
development of our product candidates, as well as new government
grant awards and/or agreements, no assurance can be provided that
any such collaborations, awards or agreements will occur in the
future.
Our future working capital requirements will depend on many
factors, including, without limitation, potential impacts related
to the current COVID-19 pandemic, the scope and nature of
opportunities related to our success and the success of certain
other companies in nonclinical and clinical trials, including our
development and commercialization of our current product candidates
and various applications of our stem cell technology platform, the
availability of, and our ability to obtain, government grant awards
and agreements, and our ability to enter into collaborations on
terms acceptable to us. To further advance the clinical development
of PH94B, PH10, and AV-101 and, to a lesser extent, our stem cell
technology platform, as well as support our operating activities,
we plan to continue to carefully manage our routine operating
costs, including our employee headcount and related expenses, as
well as costs relating to regulatory consulting, contract
manufacturing, research and development, investor and public
relations, business development, legal, intellectual property
acquisition and protection, public company compliance and other
professional services and operating costs.
Notwithstanding the foregoing, there can be no assurance that our
current strategic collaborations under the EverInsight Agreement
and the Bayer Agreement will generate revenue from future potential
milestone payments, or that future financings or government or
other strategic collaborations will be available to us in
sufficient amounts, in a timely manner, or on terms acceptable to
us, if at all. If we are unable to obtain substantial additional
financing on a timely basis when needed in 2021 or thereafter, our
business, financial condition, and results of operations may be
harmed, the price of our stock may decline, we may be required to
reduce, defer, or discontinue certain of our research and
development activities and we may not be able to continue as a
going concern. As noted above, these Condensed
Consolidated Financial Statements do not include any adjustments
that might result from the negative outcome of this
uncertainty.
Note 3. Summary of Significant Accounting
Policies
Use of Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates. Significant estimates
include those relating to revenue recognition, share-based
compensation, right-of-use assets and lease liabilities and
assumptions that have been used historically to value warrants and
warrant modifications.
Revenue Recognition
We
generate revenue from collaborative research and development
arrangements, licensing and technology transfer agreements,
including strategic licenses or sublicenses, and government grants.
We expect that our primary source of revenue beginning in the
quarter ended September 30, 2020 will be from the EverInsight
Agreement involving clinical development and commercialization of
PH94B for acute treatment of anxiety in adults with SAD, and
potentially other anxiety-related disorders, in Greater China,
South Korea, and Southeast Asia.
The terms of the EverInsight
Agreement include a $5.0 million non-refundable upfront license fee
which we received in August 2020, potential payments based upon
achievement of certain development and commercial milestones, and
royalties on product sales. We also have the Bayer Agreement,
pursuant to which we recorded
sublicense revenue in the third quarter of our fiscal year ended
March 31, 2017,
also
described
in Note 11,
Sublicensing and Collaborative
Agreements
,
as a
potential revenue generating arrangement.
Under
Accounting Standards Codification (
ASC
) Topic 606,
Revenue from Contracts with Customers (Topic
606)
, we recognize revenue when our customers obtain control
of promised goods or services, in an amount that reflects the
consideration that we expect to receive in exchange for those goods
or services. To determine revenue recognition for arrangements that
we determine are within the scope of Topic 606, we perform the
following five steps: (i) identify the contract with a customer;
(ii) identify the performance obligations in the contract; (iii)
determine the transaction price, including variable consideration,
if any; (iv) allocate the transaction price to the performance
obligations in the contract; and (v) recognize revenue when (or as)
we satisfy a performance obligation. We only apply the five-step
model to contracts when it is probable that we will collect the
consideration to which we are entitled in exchange for the goods or
services we transfer to a customer.
Performance Obligations
We
assess whether each promised good or service is distinct for the
purpose of identifying the performance obligations in the contract.
This assessment involves subjective determinations and requires
judgments about the individual promised goods or services and
whether such components are separable from the other aspects of the
contractual relationship. In assessing whether a promised good or
service is distinct in the evaluation of a collaboration
arrangement subject to Topic 606, we consider factors such as the
research, manufacturing and commercialization capabilities of the
collaboration partner and the availability of the associated
expertise in the general marketplace.
Collaboration
arrangements can have several promised goods or services including
a license for our intellectual property, product supply and
development and regulatory services. When the customer could not
obtain the intended benefit of the contract from a promised good or
service without one or more other promises in the contract, the
promise is determined to be not distinct in the context of the
contract and is combined with other promises until the combined
promises are distinct to identify performance obligations. We have
determined that the EverInsight Agreement includes a single
combined performance obligation that includes both the license to
intellectual property and development and regulatory
services.
Arrangements
can include promises for optional additional items,
which are considered marketing offers and are
accounted for as separate contracts when the customer elects such
options. Arrangements that include
a promise for future
supply of product for either clinical development or commercial
supply
and optional research and
development services
at the customer’s or the
Company’s discretion are generally considered as options. We
assess whether these options provide a material right to the
customer and if so, such material rights are accounted for as
separate performance obligations. When the customer exercises an
option, any additional payments related to the option are recorded
in revenue when the customer obtains control of the goods or
services.
Transaction Price
Arrangements
may have both fixed and variable consideration. For collaboration
agreements, the non-refundable upfront fees and product supply
selling prices are considered fixed, while milestone payments are
considered variable consideration when determining the transaction
price. At the inception of each arrangement, we evaluate whether
the development milestones are considered probable of being
achieved and estimate an amount to be included in the transaction
price using the most likely amount method. If it is probable that a
significant revenue reversal would not occur, the value of the
associated milestone is included in the transaction price.
Milestone payments that are not within our control or the
licensee’s control, such as approvals from regulators, are
generally not considered probable of being achieved until such
approvals are received.
For
sales-based royalties, including commercial milestone payments
based on the level of sales, for which the license is deemed to be
the predominant item to which the royalties relate, we recognize
revenue at the later of when (a) the related sales occur, or (b)
the performance obligation to which some or all of the royalty has
been allocated has been satisfied (or partially
satisfied).
In
determining the transaction price, we adjust consideration for the
effects of the time value of money if the timing of payments
provides us with a significant benefit of financing. We do not
assess whether a contract has a significant financing component if
the expectation at contract inception is such that the period
between payment by the licensee and the transfer of the promised
goods or services to the licensee will be one year or
less.
Allocation of Consideration
As part
of the accounting for collaboration arrangements, we must develop
assumptions that require judgment to determine the stand-alone
selling price of each performance obligation identified in the
contract. The transaction price is allocated to the identified
performance obligations in proportion to their standalone selling
prices (
SSP
) on a relative
SSP basis. SSP is determined at contract inception and is not
updated to reflect changes between contract inception and
satisfaction of the performance obligations. In developing the SSP
for a performance obligation, we consider applicable market
conditions and relevant Company-specific factors, including factors
that were contemplated in negotiating the agreement with the
customer and estimated costs. We validate the SSP for performance
obligations by evaluating whether changes in the key assumptions
used to determine the SSP will have a significant effect on the
allocation of arrangement consideration between multiple
performance obligations. Since the EverInsight Agreement includes a
single combined performance obligation that is not distinct, there
is no allocation of consideration.
Timing of Recognition
Significant
management judgment is required to determine the level of effort
required under collaboration arrangements and the period over which
we expect to complete our performance obligations under the
arrangement. The performance period or measure of progress is
estimated at the inception of the arrangement and re-evaluated in
each reporting period. This re-evaluation may shorten or lengthen
the period over which revenue is recognized. Changes to these
estimates are recorded on a cumulative catch up basis.
Revenue is recognized for products at a point in
time and for licenses of functional intellectual property at the
point in time the customer can use and benefit from the license.
For performance obligations that are services, revenue is
recognized over time using an output or input method.
For
performance obligations that are a combination of licenses to
intellectual property and interdependent services, the nature of
the combined performance obligation is considered when determining
the method and measure of progress that best represents the
satisfaction of the performance obligation. For the single combined
performance obligation of the EverInsight Agreement, the measure of
progress is stand-ready straight-line over the period in which we
expect to perform the services related to the license of
PH94B.
The
difference between revenue recognized to-date and the consideration
invoiced or received to-date is recognized as either a contract
asset/unbilled revenue (revenue earned exceeds cash received) or a
contract liability/deferred revenue (cash received exceeds revenue
earned). At September 30, 2020, we have recorded deferred revenue
of $4,666,000. The following table presents changes in our contract
liabilities for the six months ended September 30, 2020 (in
thousands):
|
|
Balance at
|
|
|
Balance
at
|
|
|
March 31, 2020
|
Additions
|
Deductions
|
September 30, 2020
|
|
Deferred
Revenue - current portion
|
$
-
|
$
1,244,000
|
$
-
|
$
1,244,000
|
|
Deferred
Revenue - non-current portion
|
-
|
3,756,000
|
(334,000
)
|
3,422,000
|
|
Total
|
$
-
|
$
5,000,000
|
$
(334,000
)
|
$
4,666,000
|
For the
single combined performance obligation under the EverInsight
Agreement, the measure of progress is stand-ready straight-line
over the period in which we expect to perform the services related
to the license of PH94B. Accordingly, deferred revenue is being
recognized on a straight-line basis over the period in which we
expect to perform the services.
During
the three and six months ended September 30, 2020 and 2019, we
recognized the following revenue:
|
|
Three and Six Months Ended
September 30,
|
|
|
|
2020
|
2019
|
|
Revenue
recognized in the period from:
|
|
|
|
Amounts
included in contract liabilities at the beginning of the
period:
|
|
|
|
Performance obligations satisfied
|
$
-
|
$
-
|
|
New
activities in the period:
|
|
|
|
Performance obligations satisfied
|
334,000
|
-
|
|
|
|
|
|
|
$
334,000
|
$
-
|
Contract Acquisition Costs
During
the quarter ended September 30, 2020, we made cash payments
aggregating $345,000 for sublicense fees which we were obligated to
make pursuant to our PH94B license from Pherin, and fees for
consulting services exclusively related to the EverInsight
Agreement. Additionally, on June 24, 2020, we issued 233,645
unregistered shares of our common stock, valued at $125,000, as
partial compensation for consulting services exclusively related to
the EverInsight Agreement. These sublicense fees and consulting
payments and the fair value of the common stock issued, aggregating
$470,000, were incurred solely as a result of obtaining the
EverInsight Agreement, and, accordingly, have been capitalized as
deferred contract acquisition costs in our Condensed Consolidated
Balance Sheet. Capitalized contract acquisition costs are amortized
over the period in which we expect to satisfy the performance
obligations under the EverInsight Agreement and the amortization
expense has been included in general and administrative expenses in
our Condensed Consolidated Statement of Operations and
Comprehensive Loss. In the quarter and six months ended September
30, 2020, we amortized $31,400 to general and administrative
expense in recognition of the services performed under the
arrangement. There has been no impairment loss in relation to the
costs capitalized.
The
following table summarizes our contract acquisition costs for the
six months ended September 30, 2020.
|
|
Balance at
|
|
|
Balance
at
|
|
|
March 31, 2020
|
Additions
|
Deductions
|
September 30, 2020
|
|
Deferred
Contract Acquisition Costs - current portion
|
$
-
|
$
116,900
|
$
-
|
$
116,900
|
|
Deferred
Contract Acquisition Costs - non-current portion
|
-
|
353,100
|
(31,400
)
|
321,700
|
|
Total
|
$
-
|
$
470,000
|
$
(31,400
)
|
$
438,600
|
Research and Development Expenses
Research and development expenses are composed of both internal and
external costs. Internal costs include salaries and
employment-related expenses, including stock-based compensation
expense, of scientific personnel and direct project
costs. External research and development expenses
consist primarily of costs associated with clinical and nonclinical
development of PH94B, PH10, AV-101, and stem cell research and
development costs, and costs related to the application and
prosecution of patents related to those product candidates and, to
a lesser extent, our stem cell technology platform. All such costs
are charged to expense as incurred. We also record accruals for
estimated ongoing clinical trial costs. Clinical trial costs
represent costs incurred by contract research organizations
(
CRO
s) and clinical trial sites. Progress payments are
generally made to contract research and development organizations,
clinical sites, investigators and other professional service
providers. We analyze the progress of clinical trials, including
levels of subject enrollment, invoices received and contracted
costs, when evaluating the adequacy of accrued liabilities.
Significant judgments and estimates must be made and used in
determining the clinical trial accrual in any reporting period.
Actual results could differ from those estimates under different
assumptions. Revisions are charged to research and development
expense in the period in which the facts that give rise to the
revision become known. Costs incurred in obtaining product or
technology licenses are charged immediately to research and
development expense if the product or technology licensed has not
achieved regulatory approval or reached technical feasibility and
has no alternative future uses, as was the case with our
acquisition of the exclusive worldwide licenses for PH94B and PH10
from Pherin during our fiscal year ended March 31,
2019.
Stock-Based Compensation
We recognize compensation cost for all stock-based awards to
employees and non-employee consultants based on the grant date fair
value of the award. We record non-cash, stock-based
compensation expense over the period during which the employee or
other grantee is required to perform services in exchange for the
award, which generally represents the scheduled vesting
period. We have not granted restricted stock awards to
employees nor do we have any awards with market or performance
conditions. Non-cash expense attributable to compensatory
grants of shares of our common stock to non-employees is determined
by the quoted market price of the stock on the date of grant and is
either recognized as fully-earned at the time of the grant or
amortized ratably over the term of the related service agreement,
depending on the terms of the specific agreement.
The table below summarizes stock-based compensation expense
included in the accompanying Condensed Consolidated Statements of
Operations and Comprehensive Loss for the three and six months
ended September 30, 2020.
|
|
Three
Months Ended September 30,
|
Six
Months Ended September 30,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
|
|
|
|
|
|
Research and
development expense
|
$
122,400
|
$
167,500
|
$
349,000
|
$
558,100
|
|
General and
administrative expense
|
288,500
|
226,000
|
736,500
|
898,400
|
|
|
|
|
|
|
|
Total
stock-based compensation expense
|
$
410,900
|
$
393,500
|
$
1,085,500
|
$
1,456,500
|
Expense amounts reported above include $1,300 and $3,800 in
research and development expense for the three and six months ended
September 30, 2020, respectively, and $1,300 and $2,800 in general
and administrative expense for the three and six months ended
September 30, 2020, respectively, attributable to our 2019 Employee
Stock Purchase Plan.
During the three and six months ended September 30, 2020, we
granted from our 2019 Omnibus Equity Incentive Plan (the
2019
Plan
) options to purchase an
aggregate of 120,000 shares and 2,065,000 shares, respectively, of
our common stock at exercise prices at or above the closing market
price of our common stock on the date of grant to the independent
members of our Board, our officers and employees and certain
consultants. The options generally vested 25% upon grant with the
remaining shares vesting ratably over two years for independent
directors, officers and employees, and over one to three years for
consultants. We valued the options granted during the three and six
months ended September 30, 2020 using the Black-Scholes Option
Pricing Model and the following assumptions:
|
|
Three Months Ended September 30, 2020
|
Six Months Ended September 30, 2020
|
||
|
Assumption:
|
Weighted
Average
|
Range
|
Weighted
Average
|
Range
|
|
Market
price per share at grant date
|
$
0.67
|
$
0.62 to 0.73
|
$
0.43
|
$
0.40 to 0.73
|
|
Exercise
price per share
|
$
0.67
|
$
0.62 to 0.73
|
$
0.43
|
$
0.40 to 0.73
|
|
Risk-free
interest rate
|
0.31
%
|
0.26%
to 0.33%
|
0.38
%
|
0.35%
to 0.44%
|
|
Expected
term in years
|
5.49
|
5.20 to
5.58
|
5.36
|
5.20 to
5.94
|
|
Volatility
|
84.71
%
|
84.55%
to 85.32%
|
84.14
%
|
82.93%
to 85.85%
|
|
Dividend
rate
|
0.0
%
|
0.0
%
|
0.0
%
|
0.0
%
|
|
Shares
|
120,000
|
|
2,065,000
|
|
|
|
|
|
|
|
|
Fair Value per share
|
$
0.46
|
|
$
0.29
|
|
At September 30, 2020, there were stock options outstanding under
our 2016 Equity Incentive Plan (the
2016 Plan
) and our 2019 Plan to purchase 12,068,088 shares
of our common stock at a weighted average exercise price of $1.20
per share. At that date, there were also 4,665,162 shares of our
common stock available for future issuance under the 2019 Plan.
There are no additional shares available for issuance under our
2016 Plan.
Leases, Right-of-Use Assets and Lease Liabilities
On
April 1, 2019, we adopted
Financial
Accounting Standards Board (
FASB
) Accounting Standards Update (
ASU
) No. 2016-02,
Leases
, which replaced the existing guidance in
Accounting Standards Codification (
ASC
) 840, “Leases”, and its subsequent
amendments including ASU No. 2018-11,
Leases (Topic 842):
Targeted Improvements
(
ASC
842
)
using the modified
transition method.
We
determine whether an arrangement is an operating or financing lease
at contract inception. Operating lease assets represent our right
to use an underlying asset for the lease term and operating lease
liabilities represent our obligation to make lease payments arising
from the lease. Operating lease assets and liabilities are
recognized at the commencement date of the lease based upon the
present value of lease payments over the lease term. When
determining the lease term, we include options to extend or
terminate the lease when it is reasonably certain that we will
exercise that option. In determining the present value of the lease
payments, we use the interest rate implicit in the lease when it is
readily determinable and we use our estimated incremental borrowing
rate based upon information available at the commencement date when
the implicit rate is not readily determinable.
The
lease payments used to determine our operating lease assets include
lease incentives and stated rent increases and may include
escalation or other clauses linked to rates of inflation or other
factors when determinable and are recognized in our operating lease
assets in our condensed consolidated balance sheets.
Our
operating leases are reflected in right of use asset –
operating leases, other current liabilities and non-current
operating lease liability in our condensed consolidated balance
sheets. Lease expense for minimum lease payments is recognized on a
straight-line basis over the lease term. Short-term leases, defined
as leases that have a lease term of 12 months or less at the
commencement date, are excluded from this treatment and are
recognized on a straight-line basis over the term of the
lease.
Our
accounting for financing leases, previously referred to as
“capital leases” under earlier guidance, remained
substantially unchanged with our adoption of ASC 842. Financing
leases are included in property and equipment, net and as current
and non-current financing lease liabilities in our condensed
consolidated balance sheets. Refer to Note 10,
Commitments and Contingencies,
for
additional information regarding ASC 842 and its impact on our
condensed consolidated financial statements.
Comprehensive Loss
We have no components of other comprehensive loss other than net
loss, and accordingly our comprehensive loss is equivalent to our
net loss for the periods presented.
Loss per Common Share
Basic net loss attributable to common stockholders per share of
common stock excludes the effect of dilution and is computed by
dividing net loss increased by
the accrual of dividends on
outstanding shares of our Series B 10% Convertible Preferred Stock
(
Series B Preferred
),
by the weighted-average number of
shares of common stock outstanding for the period. Diluted net loss
attributable to common stockholders per share of common stock
reflects the potential dilution that could occur if securities or
other contracts to issue shares of common stock were exercised or
converted into shares of common stock. In calculating diluted net
loss attributable to common stockholders per share, we have
generally not increased the denominator to include the number of
potentially dilutive common shares assumed to be outstanding during
the period using the treasury stock method because the result is
antidilutive.
As a result of our net loss for all periods presented, potentially
dilutive securities were excluded from the computation of diluted
net loss per share, as their effect would be antidilutive.
Potentially dilutive securities excluded in determining diluted net
loss attributable to common stockholders per common share are as
follows:
|
|
At September 30,
|
At March 31,
|
|
|
2020
|
2020
|
|
|
|
|
|
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
|
12,068,088
|
10,003,088
|
|
Outstanding
warrants to purchase common stock
|
25,761,834
|
26,555,281
|
|
|
|
|
|
Total
|
42,058,174
|
40,786,621
|
____________
(1)
Assumes
exchange under the terms of
the October 11, 2012 Note Exchange and Purchase Agreement, as
amended
(2)
Assumes
exchange under the terms of
the Certificate of Designation of the Relative Rights and
Preferences of the Series B 10% Convertible Preferred Stock,
effective May 5, 2015; excludes shares of unregistered common stock
issuable in payment of dividends on Series B Preferred upon
conversion
(3)
Assumes
exchange under the terms of the
Certificate of Designation of the Relative Rights and Preferences
of the Series C Convertible Preferred Stock, effective January 25,
2016
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, 2020 or March 31, 2020.
Recent Accounting Pronouncements
In
August 2020, the Financial Accounting Standards Board (
FASB
) issued ASU 2020-06, Debt –
Debt with Conversion and Other Options (Subtopic 470- 20) and
Derivatives and Hedging – Contracts in Entity’s Own
Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity’s Own Equity (
ASU 2020-06
), to reduce complexity in
applying GAAP to certain financial instruments with characteristics
of liabilities and equity.
The
guidance in ASU 2020-06 simplifies the accounting for convertible
debt instruments and convertible preferred stock by removing the
existing guidance in ASC 470-20, Debt: Debt with Conversion and
Other Options, that requires entities to account for beneficial
conversion features and cash conversion features in equity,
separately from the host convertible debt or preferred stock. The
guidance in ASC 470-20 applies to convertible instruments for which
the embedded conversion features are not required to be bifurcated
from the host contract and accounted for as
derivatives.
In
addition, the amendments revise the scope exception from derivative
accounting in ASC 815-40 for freestanding financial instruments and
embedded features that are both indexed to the issuer’s own
stock and classified in stockholders’ equity, by removing
certain criteria required for equity classification. These
amendments are expected to result in more freestanding financial
instruments qualifying for equity classification (and, therefore,
not accounted for as derivatives), as well as fewer embedded
features requiring separate accounting from the host
contract.
The
amendments in ASU 2020-06 further revise the guidance in ASC 260,
Earnings Per Share, to require entities to calculate diluted
earnings per share (EPS) for convertible instruments by using the
if-converted method. In addition, entities must presume share
settlement for purposes of calculating diluted EPS when an
instrument may be settled in cash or shares.
The
amendments in ASU 2020-06 are effective for public companies for
fiscal years beginning after December 15, 2021. Early adoption is
permitted, but no earlier than fiscal years beginning after
December 15, 2020. Entities should adopt the guidance as of the
beginning of the fiscal year of adoption and cannot adopt the
guidance in an interim reporting period. We are evaluating the
impact of this new guidance, but do not believe that our adoption
of ASU 2020-06 will have a material impact on our consolidated
financial statements.
Other
than ASU 2020-06 and as described in our Form 10-K for our fiscal
year ended March 31, 2020, we do not expect that other accounting
standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a
future date will have a material impact on our consolidated
financial statements upon adoption.
Note 4. Prepaid Expenses and Other Current
Assets
Prepaid expenses and other current assets are composed of the
following at September 30, 2020 and March 31, 2020:
|
|
September
30,
|
March
31,
|
|
|
2020
|
2020
|
|
|
|
|
|
Clinical and
nonclinical materials and contract services
|
$
174,000
|
$
115,200
|
|
Insurance
|
277,800
|
107,200
|
|
All
other
|
3,900
|
2,700
|
|
|
|
|
|
|
$
455,700
|
$
225,100
|
Note 5. Property and Equipment
Property and equipment is composed of the following at September
30, 2020 and March 31, 2020:
|
|
September
30,
|
March
31,
|
|
|
2020
|
2020
|
|
|
|
|
|
Laboratory
equipment
|
$
892,500
|
$
892,500
|
|
Tenant
improvements
|
214,400
|
214,400
|
|
Computers and
network equipment
|
57,100
|
54,600
|
|
Office
furniture and equipment
|
84,600
|
84,600
|
|
Construction
in progress
|
96,400
|
-
|
|
|
1,345,000
|
1,246,100
|
|
|
|
|
|
Accumulated
depreciation and amortization
|
(1,087,400
)
|
(1,036,500
)
|
|
|
|
|
|
Property and
equipment, net
|
$
257,600
|
$
209,600
|
We recorded depreciation and amortization expense of $50,900 and
$52,100 for the six-month periods ended September 30, 2020 and
2019, respectively. The amount reported above as construction in
progress at September 30, 2020 reflects the cost of certain process
equipment acquired in connection with the manufacture of PH94B drug
product. The equipment has not yet been fully validated or placed
in service at September 30, 2020. 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, 2020 and March 31, 2020 are as follows:
|
|
September
30,
|
March
31,
|
|
|
2020
|
2020
|
|
|
|
|
|
Office equipment
subject to financing lease
|
$
14,700
|
$
14,700
|
|
Accumulated
depreciation
|
(10,900
)
|
(9,400
)
|
|
Net book value of
office equipment subject to
|
|
|
|
financing
lease
|
$
3,800
|
$
5,300
|
Note 6. Accrued Expenses
Accrued expenses are composed of the following at September 30,
2020 and March 31, 2020:
|
|
September
30,
|
March
31,
|
|
|
2020
|
2020
|
|
Accrued
expenses for clinical and nonclinical
|
|
|
|
materials,
development and contract services
|
$
92,300
|
$
462,300
|
|
Accrued
professional services
|
78,200
|
76,500
|
|
All
other
|
16,400
|
22,700
|
|
|
|
|
|
|
$
186,900
|
$
561,500
|
Note 7. Notes Payable
The following table summarizes our unsecured promissory notes at
September 30, 2020 and March 31, 2020:
|
|
September
30, 2020
|
March
31, 2020
|
||||
|
|
Principal
|
Accrued
|
|
Principal
|
Accrued
|
|
|
|
Balance
|
Interest
|
Total
|
Balance
|
Interest
|
Total
|
|
|
|
|
|
|
|
|
|
7.30% and 6.30%
Notes payable t
o insurance premium
financing company (current)
|
$
214,500
|
$
-
|
$
214,500
|
$
56,500
|
$
-
|
$
56,500
|
|
|
|
|
|
|
|
|
|
1% Note
payable under Paycheck Protection Program
|
224,400
|
1,000
|
225,400
|
-
|
-
|
-
|
|
less:
current portion
|
(137,100
)
|
(1,000
)
|
(138,100
)
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Non-current
portion
|
$
87,300
|
$
-
|
$
87,300
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
|
|
|
Total current notes
payable
|
$
351,600
|
$
1,000
|
$
352,600
|
$
56,500
|
$
-
|
$
56,500
|
In May 2020, we executed a 6.30% promissory note in the principal
amount of $322,200 in connection with certain insurance policy
premiums. The note is payable in monthly installments of $33,200,
including principal and interest, through March 2021, and had an
outstanding principal balance of $195,300 at September 30, 2020. In
February 2020, we executed a 7.30% promissory note in the principal
amount of $62,600 in connection with other insurance policy
premiums. That note is payable in monthly installments of $6,500
including principal and interest, through December 2020 and had an
outstanding principal balance of $19,200 at September 30,
2020.
In April 2020, we entered into a note payable agreement (the
PPP Loan
Agreement
) with Silicon Valley
Bank as lender (the
Lender
), pursuant to which we received net proceeds of
$224,400 from a potentially forgivable loan from the U.S. Small
Business Administration (
SBA
) pursuant to the Paycheck Protection Program
(
PPP
) enacted by Congress under the Coronavirus
Aid, Relief, and Economic Security Act (the
CARES Act
) administered by the SBA (the
PPP Loan
). The PPP Loan matures on April 22, 2022. The PPP
Loan accrues interest at a rate of 1.00% per annum, and interest
will continue to accrue throughout the period the PPP Loan is
outstanding, or until it is forgiven. Under the CARES Act
(including subsequent guidance issued by SBA and U.S. Department of
the Treasury related thereto) and the PPP Loan Agreement, payments
of both principal and interest are deferred until such time as the
SBA remits our loan forgiveness amount to Lender. The CARES Act
provides that all or a portion of the PPP Loan may be forgiven upon
our request to the Lender, subject to requirements in the PPP Loan
Agreement and the CARES Act. We submitted our request for
forgiveness of the PPP Loan on September 23, 2020. While we
currently believe that the use of the PPP Loan proceeds will meet
the conditions for forgiveness under the PPP, there can be no
assurance that we will obtain full or partial forgiveness of the
loan.
Note 8. Capital Stock
Common Stock Purchase Agreement with Lincoln Park Capital
Fund
On March 24, 2020, we entered into a purchase agreement and a
registration rights agreement with Lincoln Park Capital Fund
(
LPC
) pursuant to which LPC committed to purchase up
to $10,250,000 of our common stock at market-based prices over a
period of 24 months (the
LPC
Agreement
). On March 24, 2020,
we sold 500,000 unregistered shares of our common stock (the
Initial Purchase
Shares
) to LPC under the
purchase agreement at a price of $0.50 per share for gross cash
proceeds of $250,000 (the
Initial
Purchase
) and we also issued
750,000 unregistered shares of our common stock to LPC under the
terms of the LPC Agreement for its purchase commitments under the
LPC Agreement (the
Commitment
Shares
). To satisfy our
obligations under the registration rights agreement associated with
the LPC Agreement, we filed a Registration Statement on Form S-1
(the
LPC
Registration Statement
) with
the SEC on March 31, 2020 (Registration No. 333-237514), which the
SEC declared effective on April 14, 2020 (the
Commencement
Date
). The LPC Registration
Statement included registration of the Initial Purchase Shares and
the Commitment Shares. The fair value of the Commitment Shares,
$284,400, determined based on the quoted closing market price of
our common stock on March 24, 2020, is a component of deferred
offering costs attributable to this offering, which costs are
amortized ratably to additional paid-in capital as we sell shares
of our common stock to LPC under the LPC Agreement. Subsequent to
the Commencement Date and through September 30, 2020, we have sold
an additional 6,301,995 registered shares of our common stock to
LPC and received aggregate gross cash proceeds of $2,891,200. At
September 30, 2020, there were approximately 2.04 million
registered shares of our common stock remaining available for sale
under the LPC Agreement; however, we have no obligation to sell any
additional shares under the agreement.
On any business day during the term of the LPC Agreement, we have
the right, in our sole discretion, to direct LPC to purchase up to
100,000 shares on such business day (the
Regular
Purchase
) (subject to
adjustment under certain circumstances as provided in the LPC
Agreement)
. The purchase price
per share for each such Regular Purchase will be based on
prevailing market prices of our common stock immediately preceding
the time of sale as computed under the LPC Agreement. In each case,
LPC’s maximum commitment in any single Regular Purchase may
not exceed $1,000,000. In addition to Regular Purchases, provided
that we present LPC with a purchase notice for the full amount
allowed for a Regular Purchase, we may also direct LPC to
make
accelerated purchases and
additional accelerated purchases as described in the LPC
Agreement
. Although
LPC
has no right to require us to sell any shares of our common stock
to LPC, LPC is obligated to make purchases as we direct, subject to
certain conditions. In all instances, we may not sell shares of our
common stock to LPC under the LPC Agreement if such sales would
result in LPC beneficially owning more than 9.99% of our common
stock. There are no upper limits on the price per share that LPC
must pay for shares of our common stock.
Sale of Common Stock and Warrants in the Spring 2020 Private
Placement
In April 2020, in a self-directed private placement, we sold to an
accredited investor units to purchase an aggregate of 125,000
unregistered shares of our common stock and four-year warrants to
purchase 125,000 shares of our common stock at an exercise price of
$0.50 per share and we received cash proceeds of $50,000
(the
Spring
2020 Private Placement
).
Registration Statement for shares underlying warrants issued in
Private Placements
On May 1, 2020, we filed a registration statement on Form S-3
(Registration No. 333-237968) to register approximately 12.1
million shares of common stock underlying outstanding warrants that
we had issued in earlier private placement offerings, including the
Spring 2020 Private Placement, as well as common stock underlying
warrants that had been previously issued to various consultants as
full or partial compensation for their services. Included in the
registration statement were shares of our common stock underlying
approximately 5.8 million outstanding warrants to purchase shares
of our common stock that had been modified in December 2019 to
temporarily reduce, for a period of two years or, if sooner, until
the expiration of the warrant, the exercise price of such warrants
to $0.50 per share, in order to more closely align the exercise
price of the warrants with the trading price of our common stock at
that time (the
Winter 2019 Warrant
Modification
). We also
registered approximately 0.8 million shares of unregistered
outstanding common stock held by former holders of warrants who had
exercised such warrants subsequent to the Winter 2019 Warrant
Modification. Further, we registered the 125,000 shares of common
stock issued in the Spring 2020 Private Placement. The SEC declared
the registration statement effective on May 13, 2020 (the
Warrant
Registration Statement
). As a
result of the effectiveness of this registration statement, the
shares of common stock underlying essentially all of our
outstanding warrants have been registered. During July 2020,
holders of warrants to purchase an aggregate of 228,000 shares of
our common stock exercised such warrants, and we received aggregate
cash proceeds of $114,000. We issued 228,000 registered shares of
our common stock upon these exercises pursuant to the effectiveness
of the Warrant Registration Statement.
Registered Public Offering of Common Stock
On August 2, 2020, we entered into an underwriting agreement
(the
Underwriting
Agreement
) with Maxim Group,
LLC as representative of the underwriters named therein (the
Underwriter
), pursuant to which we sold to the Underwriter,
in an underwritten public offering (the
August 2020 Public
Offering
), an aggregate of
15,625,000 shares (the
Shares
) of our common stock for a public offering price
of $0.80 per Share, resulting in gross proceeds to us of
$12,500,000. The August 2020 Public Offering closed on August 5,
2020 at which time we sold the Shares to the Underwriter. Under the
terms of the Underwriting Agreement, we granted to the Underwriter
a 45-day over-allotment option (the
Over-Allotment
Option
) to purchase up to an
additional 2,343,750 Shares (the
Option
Shares
) at a public offering
price of $0.80 per share. On August 5, 2020, the Underwriter
elected to exercise the Over-Allotment Option with respect to an
aggregate of 2,243,250 Option Shares (the
Exercised Option
Shares
). We completed the sale
of the Exercised Option Shares on August 7, 2020 and received
additional gross proceeds of $1,794,600. After deducting
underwriting discounts and commissions and offering expenses
payable by us, we received net proceeds of approximately $12.9
million from the sale of the Shares and the Exercised Option
Shares.
Warrants Outstanding
The following table summarizes warrants outstanding and exercisable
as of September 30, 2020 including the warrants issued in the
Spring 2020 Private Placement described above and excluding certain
warrants that expired during the quarter ended September 30, 2020.
The weighted average exercise price of both outstanding and
exercisable warrants at September 30, 2020 is $1.53 per
share.
|
|
|
Warrants
|
Warrants
|
|
Exercise
|
|
Outstanding
at
|
Exercisable
at
|
|
Price
|
Expiration
|
September
30,
|
September
30,
|
|
per
Share
|
Date
|
2020
|
2020
|
|
|
|
|
|
|
$
0.50
|
3/25/2021 to
4/30/2024
|
7,923,312
|
7,798,312
|
|
$
0.73
|
7/25/2025
|
3,870,077
|
3,870,077
|
|
$
0.805
|
12/31/2022
|
80,431
|
80,431
|
|
$
1.50
|
12/13/2022
|
9,596,200
|
9,596,200
|
|
$
1.82
|
3/7/2023
|
1,388,931
|
1,388,931
|
|
$
3.51
|
12/31/2021
|
50,000
|
50,000
|
|
$
5.30
|
5/16/2021
|
2,705,883
|
2,705,883
|
|
$
7.00
|
3/3/2023
|
147,000
|
147,000
|
|
|
|
|
|
|
|
25,761,834
|
25,636,834
|
|
At September 30, 2020, with the effectiveness of the Warrant
Registration Statement in May 2020, the shares of common stock
underlying essentially all of the outstanding warrants except those
having an exercise price of $7.00 per share have been registered
for resale by the warrant holders. Warrants to purchase 125,000
shares of common stock issued in the Spring 2020 Private Placement
are exercisable at $0.50 per share and become exercisable on
October 24, 2020. Additionally,
no outstanding warrant is subject to any down
round anti-dilution protection features and all of the outstanding
warrants are exercisable by the holders only by payment in cash of
the stated exercise price per share.
Note 9. Related Party Transactions
Contract Research and Development Agreement with Cato Research
Ltd.
Cato
Holding Company (
CHC
),
doing business as Cato BioVentures (
CBV
), was the parent of Cato Research
Ltd. (
CRL
), now known as
Cato Research LLC. CRL is a contract research, development and
regulatory services organization (
CRO
) that we have in the past, and
continue to engage for a wide range of material aspects related to
the nonclinical and clinical development, manufacturing and
regulatory affairs associated with our efforts to develop and
commercialize PH94B, PH10, AV-101. In October 2018, CHC completed
the sale of CRL to an independent third party. As a result of this
transaction, CHC and/or CBV is no longer affiliated with or has any
control over CRL. Prior to the sale of CRL, CBV held shares of our
common stock and at September 30 2020, CBV held approximately 1.3%
of our outstanding common stock.
In July
2017, we entered into a Master Services Agreement (
MSA
) with CRL, which replaced a
substantially similar May 2007 master services agreement, pursuant
to which CRL may assist us in the evaluation, development,
commercialization and marketing of our potential product
candidates, and provide regulatory and strategic consulting
services as requested from time to time. Specific projects or
services are and will be delineated in individual work orders
negotiated from time-to-time under the MSA.
Under the terms of work orders issued pursuant to
the July 2017 MSA, we incurred expenses of $273,700 and $1,610,900
during the quarters ended September 30, 2020 and 2019, respectively
and $398,600 and $3,016,000 for the six months ended September 30,
2020 and 2019, respectively. At September 30, 2020 and March 31,
2020, we had recorded accounts payable and accrued expenses related
to CRL aggregating $116,100 and $578,800, respectively. We
anticipate periodic expenses for CRO services from CRL related to
nonclinical and clinical development of, and regulatory affairs
related to PH94B, PH10, AV-101 and other potential product
candidates will remain significant in future
periods.
License and Option Agreements with Pherin Pharmaceuticals,
Inc.
During our fiscal year ended March 31, 2019,
we issued an
aggregate of 2,556,361 shares of our unregistered common stock
having an issue-date fair market value of $4,250,000 to Pherin to
acquire exclusive worldwide licenses to develop and commercialize
PH94B and PH10. We recorded the acquisition of the licenses as
research and development expense during our fiscal year ended March
31, 2019. We recorded no expense during the quarter ended September
30, 2020 and $30,000 during the quarter ended September 30, 2019,
and $10,000 and $60,000, for the six months ended September 30,
2020 and 2019, respectively, as research and development expense
for monthly support payments to Pherin under the terms of the PH94B
and PH10 license agreements. Our liability for such monthly support
payments terminated in April 2020 under the terms of the PH10
license agreement. During the quarter ended September 30, 2020,
under the terms of the PH94B license agreement we made a milestone
payment of $220,000 to Pherin related to the upfront payment
received under the EverInsight Agreement. The payment is included
as a component of Deferred Contract Acquisition Costs on the
Condensed Consolidated Balance Sheet at September 30, 2020. We
recorded no amounts payable to Pherin at September 30, 2020 or
March 31, 2020. At September 30, 2020, Pherin held approximately
1.8% of our outstanding common stock.
Consulting Agreement
During
the quarters ended September 30, 2020 and 2019, we engaged a
consulting firm headed by one of the independent members of our
Board to provide various market research studies, competitive
analyses, and commercial advisory projects for certain of our CNS
pipeline candidates pursuant to which we recorded research and
development expense of $13,000 and $75,100 for the quarters ended
September 30, 2020 and 2019, respectively and $28,000 and $102,800
for the six months ended September 30, 2020 and 2019, respectively.
We recorded accounts payable and accrued expenses of $13,000 at
September 30, 2020 and no amounts payable at March 31, 2020 related
to these projects and services.
Note 10. Commitments and Contingencies
Operating Leases
We lease our headquarters office and laboratory space in South San
Francisco, California under the terms of a lease that expires on
July 31, 2022 and that provides an option to renew for an
additional five years at then-current market rates. Consistent with
the guidance in Accounting Standards Codification Topic 842, Leases
(
ASC
842
), beginning April 1, 2019,
we recorded this lease in our Condensed Consolidated Balance Sheet
as an operating lease. For the purpose of determining the
right-of-use asset and associated lease liability, we determined
that the renewal of this lease is reasonably probable. The
lease of our South San Francisco facilities does not include any
restrictions or covenants requiring special treatment under ASC
842.
The following table summarizes the presentation of the operating
lease in our Condensed Consolidated Balance Sheet at September 30,
2020 and March 31, 2020:
|
|
As of
September 30, 2020
|
As of
March 31, 2020
|
|
Assets
|
|
|
|
Right
of use asset – operating lease
|
$
3,403,000
|
$
3,579,600
|
|
|
|
|
|
Liabilities
|
|
|
|
Current
operating lease obligation
|
$
338,500
|
$
313,400
|
|
Non-current
operating lease obligation
|
3,540,900
|
3,715,600
|
|
Total
operating lease liability
|
$
3,879,400
|
$
4,029,000
|
The following table summarizes the effect of operating lease costs
in the Company’s condensed consolidated statements of
operations for the three and six months ended September 30, 2020
and 2019:
|
|
For
the Three Months Ended September 30,
|
For
the Six Months Ended September 30,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
|
|
|
|
|
|
Operating lease
cost
|
$
207,300
|
$
203,100
|
$
420,100
|
$
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,
|
|
|
2021
(remaining six months)
|
$
326,600
|
|
2022
|
668,400
|
|
2023
|
726,000
|
|
2024
|
766,000
|
|
2025
|
789,000
|
|
Thereafter
|
1,931,400
|
|
Total
lease expense
|
5,207,400
|
|
Less
imputed interest
|
(1,328,000
)
|
|
Present
value of operating lease liabilities
|
$
3,879,400
|
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, 2020
|
|
Assumed
remaining lease term in years
|
6.83
|
|
Assumed
discount rate
|
8.54
%
|
The interest rate implicit in lease contracts is typically not
readily determinable and, as such, we used our estimated
incremental borrowing rate based on information available at the
adoption of ASC 842, which represents an internally developed rate
that would be incurred to borrow, on a collateralized basis, over a
similar term, an amount equal to the lease payments in a similar
economic environment.
Supplemental disclosure of cash flow information related to our
operating lease included in cash flows used by operating activities
in the condensed consolidated statements of cash flows is as
follows:
|
|
For the
Six Months Ended
|
For the
Six Months Ended
|
|
|
September 30, 2020
|
September 30, 2019
|
|
Cash
paid for amounts included in the measurement of lease
liabilities
|
$
393,100
|
$
374,200
|
During the six months ended September 30, 2020, we recorded no new
right of use assets arising from new lease
liabilities.
We also lease a small office in the San Francisco Bay Area under a
month-to-month arrangement at insignificant cost and have made an
accounting policy election not to apply the ASC 842 operating lease
recognition requirements to such short-term lease. We recognize the
lease payments for this lease in general and administrative expense
over the lease term. We recorded rent expense of $3,500 for
each of the three month periods ended September 30, 2020 and 2019,
respectively, and $7,100 and $6,900 for the six months ended
September 30, 2020 and 2019, respectively, attributable to this
lease.
Note 11. Sublicensing and Collaborative Agreements
PH94B Sublicense Agreement with EverInsight
On June 24, 2020, we entered into a license and collaboration
agreement (the
EverInsight
Agreement
)
with
EverInsight Therapeutics Inc., a company
incorporated under the laws of the British Virgin Islands and
funded by CBC Group, a global healthcare-focused venture capital
firm (
EverInsight
). In
October 2020, it was announced that EverInsight is to merge with
AffaMed Therapeutics, also funded by CBC Group, which as a
combined, complementary entity will focus on developing and
commercializing therapeutics to address ophthalmologic and CNS
disorders in Greater China and beyond. Under the EverInsight
Agreement, we g
ranted EverInsight an exclusive license
to develop and commercialize PH94B, our neuroactive pherin drug
candidate for SAD and other anxiety-related disorders, in Greater
China (which includes Mainland China, Hong Kong, Macau and Taiwan),
South Korea and Southeast Asia (which includes Indonesia, Malaysia,
Philippines, Thailand and Vietnam) (collectively, the
Territory
). We retain exclusive development and
commercialization rights for PH94B in the rest of the
world.
Under
the terms of the EverInsight Agreement, EverInsight is be
responsible for all costs related to developing, obtaining
regulatory approval of, and commercializing PH94B for treatment of
SAD, and potentially other anxiety-related indications, in the
Territory. A joint development committee has been established
between us and EverInsight to coordinate and review the development
and commercialization plans with respect to PH94B in the
Territory.
We are
responsible for pursuing clinical development and regulatory
submissions of PH94B for acute treatment of anxiety in adults with
SAD, and potentially other anxiety-related indications, in the
United States on a ‘‘best efforts’’ basis,
with no guarantee of success. EverInsight has the option to
participate in the global Phase 3 clinical trial of PH94B and will
assume all direct costs and expenses of conducting such clinical
trial in the Territory and a portion of the indirect costs of the
global trial. We will transfer all development data (nonclinical
and clinical data) and our regulatory documentation related to
PH94B throughout the term as it is developed or generated or
otherwise comes into our control. We will grant to EverInsight a
Right of Reference to all of our regulatory documentation and our
development data.
Under the terms of the EverInsight Agreement, EverInsight
agreed to pay us a non-refundable upfront license payment of $5.0
million
within 30 business days of the effective date of the
EverInsight Agreement, and EverInsight paid the $5 million in
August 2020.
Additionally, upon
successful development and commercialization of PH94B in the
Territory,
we are eligible to receive milestone payments of
up to $172.0 million. Further, we are eligible to receive royalty
payments on a country-by-country basis on net sales for the later
of ten years or the expiration of market or regulatory exclusivity
in the jurisdiction, except that payments will be reduced on a
country-by-country basis in the event that there is no market
exclusivity in the period. Royalty payments may also be reduced if
there is generic competitive product in the period.
We have
determined that we have one combined performance obligation for the
license to develop and commercialize PH94B in the Territory and
related development and regulatory services. In addition,
EverInsight has an option that will create manufacturing
obligations for us during development upon exercise by EverInsight.
This option for manufacturing services was evaluated and determined
not to include a material right.
Development
and commercialization milestones were not considered probable at
inception and are therefore were excluded from the initial
transaction price. The royalties were excluded from the initial
transaction price because they relate to a license of intellectual
property and are subject to the royalty constraint.
We
recognize revenue as the combined performance obligation is
satisfied over time using an output method. The measure of progress
is stand-ready straight-line over the period in which we expect to
perform the services related to the license of PH94B.
During
the three and six months ended September 30, 2020, we have
recognized $334,000 as sublicense revenue under the EverInsight
Agreement. At September 30, 2020, the aggregate amount of the
transaction price allocated to the remaining performance obligation
is $4,666,000 which will be recognized as revenue as the services
are completed, which is expected to occur over a period of
approximately four years beginning with the quarter ended September
30, 2020.
Unless earlier terminated due to certain material breaches of the
contract, or otherwise, the
EverInsight
Agreement will expire on
a jurisdiction-by-jurisdiction basis until the latest to occur
of expiration of the last valid claim under a licensed patent of
PH94B in such jurisdiction, the expiration of regulatory
exclusivity in such jurisdiction or ten years after the first
commercial sale of PH94B in such jurisdiction.
BlueRock Therapeutics Sublicense Agreement
In
December 2016, we entered into an Exclusive License and Sublicense
Agreement with BlueRock Therapeutics, LP, a next generation
regenerative medicine company established by Bayer AG and Versant
Ventures (
BlueRock
Therapeutics
), pursuant to which BlueRock Therapeutics
received exclusive rights to utilize certain technologies
exclusively licensed by us from University Health Network
(
UHN
) for the production of
cardiac stem cells for the treatment of heart disease. As a result
of its acquisition of BlueRock Therapeutics in 2019, Bayer AG now
holds the rights to develop and commercialize our hPSC technologies
relating to the production of heart cells for the treatment of
heart disease (the
Bayer
Agreement
). We retained rights to cardiac stem cell
technology licensed from UHN related to small molecule, protein and
antibody drug discovery, drug rescue and drug development,
including small molecules with cardiac regenerative potential, as
well as small molecule, protein and antibody testing involving
cardiac cells. To date, we have recognized $1.25 million in
sublicense revenue, in our fiscal year ended March 31, 2017, under
the Bayer Agreement.
Note 12. Subsequent Events
We have
evaluated subsequent events through the date of this Report and
have identified the following matters requiring
disclosure:
Grant of Options from 2019 Plan
During
October 2020, we granted options to a consultant to purchase 75,000
shares of our common stock under the terms of our 2019 Plan as
compensation for certain corporate awareness and advisory services.
The options have an exercise price equal to the quoted closing
market price of our common stock on the Nasdaq Capital Market on
the date of grant, a term of ten years and vest ratably over a
period of twelve months.
|
Item 2.
|
|
MA
N
AGEMENT’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 and commercializing differentiated new
generation medications that go beyond the current standard of care
for anxiety, depression and other central nervous system
(
CNS
) disorders. Our pipeline includes three CNS drug
candidates, each with a differentiated mechanism of action, an
exceptional safety profile in all clinical studies to date, and
therapeutic potential in multiple CNS markets. We aim to become a
fully-integrated biopharmaceutical company that develops and
commercializes innovative CNS therapies for large and growing
mental health and neurology markets where we believe current
treatments are inadequate to meet the underserved needs of millions
of patients and their caregivers worldwide.
PH94B Neuroactive Nasal Spray for Anxiety-related
Disorders
PH94B is an odorless synthetic rapid-onset neuroactive pherine
nasal spray with therapeutic potential in a wide range of
neuropsychiatric indications involving anxiety or phobia.
Conveniently self-administered in microgram-level doses without
requiring systemic uptake and distribution to achieve its
anti-anxiety effects, we are initially developing PH94B as a
potential fast-acting, non-sedating, non-addictive new generation
acute treatment of anxiety in adults with social anxiety disorder
(
SAD
). SAD affects over 20 million Americans and,
according to the National Institutes of Health (
NIH
), is the third most common psychiatric condition
after depression and substance abuse. A person with SAD feels
symptoms of anxiety or fear in certain social situations, such as
meeting new people, dating, being on a job interview, answering a
question in a classroom or conference room, or having to talk to a
cashier in a store. Doing everyday things in front of people - such
as eating or drinking in front of others or using a public restroom
- also causes anxiety or fear. A person with SAD may also feel
symptoms of fear and anxiety in performance situations, such as
giving a lecture, a speech or a presentation to classmates at
school or colleagues at work, as well as playing in a sports game,
or dancing or playing a musical instrument on stage. A person
with SAD is afraid that he or she will be humiliated, judged, and
rejected. The fear and anxiety that people with SAD have in
social and performance situations is so strong that they feel they
are beyond their ability to control. As a result, SAD gets in the
way of going to work, attending school, meeting with others
socially or doing everyday things in situations with potential for
interpersonal interaction. People with SAD may worry about these
and other things for weeks before they happen. Sometimes, they end
up staying away from places or events where they think they might
have to do something that will embarrass or humiliate them.
Without treatment, SAD can last for many years or a lifetime and
prevent a person from reaching his or her full
potential.
Only three drugs, all oral antidepressants, are approved by the U.S
Food and Drug Administration (
FDA
) specifically for treatment of SAD. These
FDA-approved antidepressants have slow onset of therapeutic effect
(often taking many weeks to months), require chronic administration
and often cause significant side effects beginning soon after
administration. We believe their slow onset of effect, required
chronic administration and significant potential side effects and
safety concerns may make the three FDA-approved oral
antidepressants inadequate or inappropriate treatment alternatives
for many underserved individuals affected by SAD. Our PH94B is
fundamentally different from all current anti-anxiety drugs, such
as benzodiazepines prescribed off-label for treatment of SAD, as
well as the three oral antidepressants approved by the FDA for
treatment of SAD.
Intranasal self-administration of a microgram level dose (3.2 mcg)
of PH94B engages specific nasal chemosensory neurons
(
NCNs
). NCNs activate olfactory bulb neurons
(
OBNs
) on the base of the brain. OBNs send neural
connections to neurons in the central limbic amygdala, the brain
center where fear and anxiety are regulated. Neurons in the limbic
amygdala modulate inhibitory/excitatory neurotransmitters,
resulting in rapid-onset anti-anxiety effects, without requiring
systemic uptake and distribution to produce such rapid-onset
effects. In all clinical studies to date, PH94B has not shown
psychological side effects (such as dissociation or
hallucinations), sedation or other side effects and safety concerns
that may be caused by the current oral antidepressants approved by
the FDA for treatment of SAD, as well as by benzodiazepines and
beta blockers, which are not approved by the FDA to treat SAD but
which are be prescribed by psychiatrists and physicians for
treatment of SAD on an off-label basis. While oral antidepressants,
benzodiazepines and beta blockers require systemic administration
to achieve anxiolytic effects, due to its unique pharmacology, our
PH94B does not require systemic uptake and distribution to achieve
its rapid-onset anti-anxiety effects.
In a
peer-reviewed, published double-blind, placebo-controlled Phase 2
clinical trial, PH94B neuroactive nasal spray was highly
statistically significantly more effective than placebo in reducing
both public-speaking (performance) anxiety (p=0.002) and social
interaction anxiety (p=0.009) in laboratory-simulated challenges of
SAD patients, within 15 minutes of their self-administration of a
non-systemic 1.6 microgram dose of PH94B. Based on the
results of this
highly statistically
significant Phase 2
study and our recent consensus with the
FDA that
our
initial pivotal Phase 3 study of PH94B may be conducted in a manner
substantially similar to the public speaking anxiety component of
such Phase 2 study,
we are preparing for pivotal Phase 3
clinical development of PH94B as an acute treatment of anxiety in
adults with SAD. Our goal is to develop and commercialize PH94B as
the first FDA-approved, rapid-onset, non-sedating, non-systemic,
non-additive acute treatment of anxiety in adults with SAD, for use
on demand to treat their symptoms of anxiety as a result of often
predictable anxiety-provoking stressors much like a rescue inhaler
is used on demand before an asthma attack or a migraine drug is
used before a migraine episode. We also believe PH94B has potential
to treat other anxiety-related neuropsychiatric indications such as
adjustment disorder, general anxiety disorder, postpartum anxiety,
preprocedural anxiety (e.g., pre-MRI), panic disorder,
post-traumatic stress disorder and specific social phobias.
The FDA has
granted Fast Track designation for development of PH94B for acute
treatment of anxiety in adults with SAD, which we believe is the
FDA’s first such designation for a drug candidate for
SAD.
In
addition to preparing for pivotal Phase 3 development of PH94B as a
potential acute treatment of anxiety for adults with SAD, we are
currently preparing for a small exploratory Phase 2A clinical study
of PH94B for acute treatment of adjustment disorder, an emotional
or behavioral reaction considered excessive or out of proportion to
a stressful event or major life change, occurring within three
months of the stressor, and/or significantly impairing a
person’s social, occupational and/or other important areas of
functioning. Given the diverse impact of the COVID-19 pandemic,
including, among other things, fear and anxiety about health and
safety, economic loss, unemployment, social isolation, disruption
of established education and work practices, we submitted our
preliminary protocol for the study to the FDA through the
FDA’s Coronavirus Treatment Acceleration Program
(
CTAP
). Following that
submission, we are continuing our discussions with the FDA’s
Division of Psychiatric Products to determine the appropriate next
steps for the study, including the study protocol. We are planning
to conduct the proposed Phase 2A study in New York City and enroll
approximately 25 subjects suffering from adjustment
disorder-provoking stressors, including, but not limited to,
stressors related to the diverse impact of the COVID-19 pandemic
and recent civil unrest in the U.S. We are also currently planning
for additional small exploratory Phase 2A studies in postpartum
anxiety, post-traumatic stress disorder, and pre-procedural anxiety
(pre-MRI).
PH10 Neuroactive Nasal Spray for Depression and Suicidal
Ideation
PH10 is an odorless synthetic neuroactive pherine nasal spray with
potential to be a fast-acting treatment for multiple
neuropsychiatric indications involving depression and suicidal
ideation. Conveniently self-administered in microgram-level doses
without systemic exposure, we are initially developing PH94B as a
potential rapid-onset, stand-alone treatment of major depressive
disorder (
MDD
).
Depression is a serious medical illness and a global public health
concern that can occur at any time over a person's life. While most
people will experience depressed mood at some point during their
lifetime, MDD is different. MDD is the chronic, pervasive feeling
of utter unhappiness and suffering, which impairs daily
functioning. Symptoms of MDD include diminished pleasure or loss of
interest in activities, changes in appetite that result in weight
changes, insomnia or oversleeping, psychomotor agitation, loss of
energy or increased fatigue, feelings of worthlessness or
inappropriate guilt, difficulty thinking, concentrating or making
decisions, and thoughts of death or suicide and attempts at
suicide.
The
most commonly-prescribed current oral antidepressants are known as
selective serotonin reuptake inhibitors (
SSRIs
), and serotonin-norepinephrine
reuptake inhibitors (
SNRIs
). SSRIs are intended to increase
the amount of available serotonin, a neurotransmitter closely
linked to mood and anxiety disorders, by inhibiting the reuptake of
serotonin in the brain, preventing nerve cells from reabsorbing
serotonin and reducing the levels in the brain. This means more
serotonin remains available, which can sometimes improve symptoms
and make patients more responsive to psychotherapy and other
treatments. SNRIs similarly are intended to inhibit the reuptake of
serotonin and another neurotransmitter, norepinephrine, and
increase the available amounts of each in the brain. Like
serotonin, norepinephrine is a neurotransmitter linked to
mood.
While
these medications can certainly be effective in the right context,
it can be a challenge to find the right drug or combination of
drugs for a particular patient.
About
two-thirds of patients with MDD do not respond to their initial
treatment with such medications.
In addition, it can take
many weeks or even months to identify whether an antidepressant is
working, all the while leaving a patient to cope with their
depression symptoms and the potentially debilitating side effects
of the antidepressants they are prescribed.
Due to their long-onset pharmacology, limited efficacy and many
side effects and safety concerns, current FDA-approved oral
antidepressants available in the multi-billion-dollar global
depression market are often inadequate to satisfy the underserved
medical needs of millions suffering from the debilitating effects
of depression. Inadequate response to current medications is among
the key reasons MDD is one of the leading public health concerns in
the United States, creating a significant unmet medical need for
new agents with fundamentally different mechanisms of action and
side effect and safety profiles.
PH10 is a new generation antidepressant with a mechanism of action
that is fundamentally different from all current FDA-approved
antidepressants. After self-administration, a non-systemic
microgram-level dose of PH10 binds to nasal chemosensory receptors
that, in turn, activate key neural circuits in the brain that can
lead to rapid-onset antidepressant effects, but without the
psychological side effects (such as dissociation and
hallucinations) or safety concerns that maybe be caused by
rapid-onset ketamine-based therapy, including both intravenous
ketamine and esketamine nasal spray, or the side effects and safety
concerns of current long-onset oral antidepressants. In a small
exploratory Phase 2A clinical trial (n=30), PH10, self-administered
at a dose of 6.4 micrograms, was well-tolerated and demonstrated
statistically significant (p=0.022) rapid-onset antidepressant
effects, which were sustained over an 8-week period, as measured by
the Hamilton Depression Rating Scale (
HAM-D
), without side effects or safety concerns that
may be caused by ketamine-based therapy and oral antidepressants.
Based on positive results from this exploratory Phase 2A study, we
are preparing for Phase 2B clinical development of PH10 in MDD,
which preparation includes completing two additional preclinical
toxicology studies required by the FDA to support our new
Investigational New Drug (
IND
) application for proposed Phase 2B clinical
development of PH10 in the U.S. With its exceptional safety profile
during clinical development to date, we believe PH10 has potential
for multiple applications in global depression markets, including
first as a differentiated stand-alone therapy for MDD, and
eventually as a potential add-on therapy to augment current
FDA-approved oral antidepressants for patients with MDD who have an
inadequate response to such medications, in lieu of ketamine-based
therapy and to prevent relapse following successful treatment with
ketamine-based therapy.
AV-101, an Oral NMDA Receptor Antagonist
AV-101 (4-Cl-KYN) targets the NMDAR (N-methyl-D-aspartate
receptor), an ionotropic glutamate receptor in the brain. Abnormal
NMDAR function is associated with numerous CNS diseases and
disorders. AV-101 is an oral prodrug of 7-chloro-kynurenic acid
(7-Cl-KYNA), which is a potent and selective full antagonist of the
glycine co-agonist site of the NMDAR that inhibits the function of
the NMDAR. Unlike ketamine and many other NMDAR antagonists,
7-Cl-KYNA is not an ion channel blocker. In all studies to date,
AV-101 has exhibited no dissociative or hallucinogenic
psychological side effects or safety concerns similar to those that
may be caused by amantadine and ketamine-based therapy. With its
exceptionally few side effects and excellent safety profile in all
studies to date, AV-101, in combination with the FDA-approved drug,
probenecid, has potential to be a new, differentiated oral
treatment for multiple large-market CNS indications where we
believe current treatments are inadequate to meet high underserved
patient needs. The FDA has granted Fast Track designation for
development of AV-101 as both a potential adjunctive treatment for
MDD and as a non-opioid treatment for neuropathic
pain.
In late-2019, we completed a Phase 2 clinical trial of AV-101 as a
potential adjunctive treatment, together with a standard
FDA-approved oral SSRI or SNRI, in MDD
patients who had an
inadequate response to a stable dose of their oral antidepressant
(the
Elevate Study
).
Topline results of the Elevate Study
(n=199) indicated that the AV-101 treatment arm did not
differentiate from placebo on the primary endpoint (change in the
Montgomery-Åsberg Depression Rating Scale (
MADRS-10
) total score compared to baseline), potentially
due to sub-therapeutic levels of 7-Cl-KYNA in the brain. As in
prior clinical studies, AV-101 was well tolerated, with no
psychotomimetic side effects or drug-related serious adverse
events.
Recent discoveries from successful preclinical studies of AV-101 in
combination with probenecid, a safe and well-known oral anion
transport inhibitor approved by the FDA for treatment of gout,
suggest that there is a substantially increased brain concentration
of AV-101 and its active metabolite, 7-Cl-KYNA, when AV-101 is
given together with probenecid.. These surprising effects were
first revealed as to AV-101 and 7-Cl-KYNA in our recent preclinical
studies, although the effects are consistent with well-documented
clinical studies of probenecid’s ability to increase the
therapeutic benefits of several classes of FDA-approved drugs that
are unrelated to AV-101 and 7-Cl-KYNA, including
certain
antibacterial, anticancer and antiviral drugs
. When probenecid was administered in combination
with AV-101 in an animal model, substantially increased brain
concentrations of both AV-101 and of 7-Cl-KYNA were
discovered.
Similar results
were achieved in a previously announced second preclinical study of
the AV-101/probenecid combination in a different animal
species.
We also recently
identified that some of the same kidney transporters that reduce
drug concentrations in the blood, by excretion in the urine, are
also found in the blood brain barrier and function to reduce
7-Cl-KYNA levels in the brain by pumping it out of the brain and
back into the blood. In the recent preclinical studies with AV-101
and probenecid, we discovered that blocking those transporters in
the blood brain barrier with probenecid resulted, as noted above,
in a substantially increased brain concentration of 7-Cl-KYNA. This
7-Cl-KYNA efflux-blocking effect of probenecid, with the resulting
increased brain levels and duration of 7-Cl-KYNA, suggests the
potential impact of AV-101 with probenecid could result in far more
profound therapeutic benefits for patients with MDD and other
NMDAR-focused CNS disorders than demonstrated in the Elevate
Study.
Some of the new
discoveries from our recent AV-101 preclinical studies with
adjunctive probenecid were presented by a collaborator of VistaGen
at the British Pharmacological Society’s Pharmacology 2019
annual conference in Edinburgh, UK in December
2019.
In addition, a Phase 1B target engagement study completed after the
Elevate Study by the Baylor College of Medicine
(
Baylor
)
with financial support from the U.S. Department of Veterans Affairs
(
VA
), involved 10 healthy volunteer U.S. military
Veterans who received single doses of AV-101 (720 mg or 1440 mg) or
placebo, in a double-blind, randomized, cross-over controlled
trial. The primary goal of the study was to identify and define a
dose-response relationship between AV-101 and multiple
electrophysiological (
EEG
) biomarkers related to NMDAR function, as well as
blood biomarkers associated with suicidality (the
Baylor
Study
). We believe the findings
from the Baylor Study suggest that, in healthy Veterans, the higher
dose of AV-101 (1440 mg) was associated with dose-related increase
in the 40 Hz Auditory Steady State Response (
ASSR
), a robust measure of the integrity of inhibitory
interneuron synchronization that is associated with NMDAR
inhibition. Findings from the Baylor Study were presented at the
58th Annual Meeting of the American College of
Neuropsychopharmacology (
ACNP
) in Orlando, Florida in December
2019.
The Baylor Study and the results of our recent preclinical studies
involving AV-101 in combination with probenecid suggest that it may
be possible to increase therapeutic concentrations and duration of
7-Cl-KYNA in the brain, and thus increase NMDAR antagonism in MDD
patients and individuals suffering from other CNS indications
involving abnormal function of the NMDAR, when AV-101 and
probenecid are combined. We are currently evaluating all data
involving AV-101, including recent data relating to AV-101 in
combination with probenecid, to determine its potential for future
clinical development and commercialization.
VistaStem Therapeutics – Stem Cell Technology for Drug Rescue
and Regenerative Medicine
In addition to our current CNS drug candidates, our wholly-owned
subsidiary, VistaStem Therapeutics (
VistaStem
) has developed stem cell technology-based,
pipeline-enabling capabilities involving application of human
pluripotent stem cell (
hPSC
) technologies. VistaStem’s customized
cardiac bioassay system,
CardioSafe
3D, has been developed to discover and develop
small molecule New Chemical Entities (
NCEs
) for our CNS pipeline or out-licensing. In
addition, VistaStem’s stem cell technologies involving
hPSC-derived blood, cartilage, heart and liver cells have multiple
potential applications in the cell therapy (
CT
) and regenerative medicine (
RM
) fields.
To advance potential CT and RM applications of VistaStem’s
hPSC technologies related to heart cells, we licensed to BlueRock
Therapeutics LP, a next generation CT/RM company formed jointly by
Bayer AG and Versant Ventures and acquired by Bayer AG in 2019,
rights to develop and commercialize certain proprietary
technologies relating to the production of cardiac stem cells for
the treatment of heart disease. As a result of its acquisition of
BlueRock Therapeutics in 2019, Bayer AG now holds such rights
(the
Bayer
Agreement
). VistaStem
retains all rights to such technologies to discover and develop
small molecule NCEs and certain other applications not licensed
pursuant to the Bayer Agreement. In a manner similar to the Bayer
Agreement, we may pursue additional VistaStem collaborations
involving rights to develop and commercialize its hPSC technologies
for production of blood, cartilage, and/or liver cells for CT and
RM applications, including, among other indications, treatment of
arthritis, cancer and liver disease.
Subsidiaries
As noted above, VistaStem Therapeutics, a California corporation,
is our wholly-owned subsidiary. Our Condensed Consolidated
Financial Statements in this Report also include the accounts of
VistaStem and VistaStem’s two wholly-owned inactive
subsidiaries, Artemis Neuroscience, Inc., a Maryland corporation,
and VistaStem Canada, Inc., a corporation organized under the laws
of Ontario, Canada.
Financial Operations Overview and Results of
Operations
Our critical accounting policies and estimates and recent
accounting pronouncements are disclosed in our Annual Report on
Form 10-K for the fiscal year ended March 31, 2020, as filed with
the SEC on June 29, 2020, and in Note 3 to the accompanying
unaudited Condensed Consolidated Financial Statements included in
Part 1, Item 1 of this Report.
Summary
Net Loss
Although
we entered into the EverInsight Agreement in June 2020 and the
Bayer Agreement in December 2016, we have not yet achieved
recurring revenue-generating status in amounts sufficient to
sustain our operations and enable our strategic business plans from
any of our product candidates or technologies.
Since inception, we have devoted substantial time
and effort to developing AV-101 for multiple CNS indications,
including manufacturing research, process development and
production of AV-101 drug substance and finished drug product,
preclinical efficacy and safety studies, and clinical efficacy and
safety studies in CNS indications. In addition, since acquiring our
exclusive worldwide licenses to PH94B and PH10 in 2018, we have
devoted substantial resources focused on development and
commercialization of PH94B and PH10, for which we are actively
pursuing initiatives to advance manufacturing research, process
development and production programs for drug substance and finished
drug product, additional preclinical safety studies, and clinical
efficacy and safety studies in multiple neuropsychiatry
indications. Also, from-time-to-time, we have devoted resources to
VistaStem’s stem cell technology research and development,
bioassay development and small molecule drug rescue initiatives, as
well as creating, protecting and patenting intellectual property
(
IP
) related to our product candidates and stem cell
technologies, with the corollary initiatives of recruiting and
retaining personnel and raising working capital.
As of
September 30, 2020, we had an accumulated deficit of approximately
$208.3 million. Our net loss for the six months ended September 30,
2020 and 2019 was approximately $6.4 million and $11.5 million,
respectively. We expect losses to continue for the foreseeable
future, primarily as we
engage in
further development and commercialization activities related to
PH94B, PH10 and AV-101, and pursue VistaStem’s potential drug
rescue, drug development and CT and RM
opportunities.
Summary of the Six Months Ended September 30, 2020
During the six months ended September 30, 2020, we continued to
advance our manufacturing, preclinical and clinical development,
and regulatory initiatives necessary for our Phase 3 clinical
development of PH94B as a potential acute treatment of anxiety in
adults with SAD, PH10 as a potential stand-alone treatment of MDD
and AV-101 in combination with probenecid as a potential treatment
for NMDAR-focused indications. In addition, we continued to expand
the regulatory and intellectual property foundation to support
broad clinical development and, ultimately, commercialization of
our product candidates in the U.S. and foreign markets, and on a
limited basis, advance drug rescue applications of
VistaStem’s stem cell technology to expand our CNS pipeline
and out-licensing opportunities.
During
the six months ended September 30, 2020 and through the date of
this Report,
a new strain of
coronavirus (
COVID-19
) has spread to many countries in the world and
the outbreak has been declared a pandemic by the World Health
Organization. The U.S. Secretary of Health and Human Services has
also declared a public health emergency in the U.S. in response to
the outbreak.
From time to time during the COVID-19
pandemic, our operations and those of our contract research
organizations (
CROs
) and
contract development and manufacturing organizations (
CDMOs
) have been impacted by
shelter-in-place orders, social
distancing measures, travel bans and restrictions, and certain
business and government closures or reductions in service. Our
headquarters operations have been significantly curtailed as our
employees have been working remotely throughout this period. From
time to time
since the beginning of the COVID-19 pandemic,
we have experienced delays in the delivery of supplies of active
pharmaceutical product (
API
) required to continue development
of PH94B and PH10. Future unexpected delays may result in a
significant, material delay or disruption to our current clinical
development plans, programs, and operations.
During the quarter ended June 30, 2020, we completed
a successful and positive meeting with
the FDA regarding Phase 3 clinical development of PH94B for the
acute treatment of anxiety in adult patients with SAD, reaching
consensus with the FDA on key aspects of a unique initial pivotal
Phase 3 clinical trial of PH94B involving a single-event,
laboratory-simulated public speaking challenge in adult patients
with SAD. We agreed with the FDA that our initial pivotal Phase 3
study of PH94B will be a randomized, double-blind,
placebo-controlled, parallel comparison study conducted at
approximately 15 sites in North America. Dr. Michael Liebowitz,
Professor of Clinical Psychiatry at Columbia University, director
of the Medical Research Network in New York City, and creator of
the Liebowitz Social Anxiety Scale (LSAS), is expected to be the
Principal Investigator of the study. Target enrollment for the
study (completed patients) is currently approximately 182 adult
patients with SAD. As in the highly statistically significant
(p=0.002) public speaking component of the Phase 2 study of PH94B
in SAD, our pivotal Phase 3 studies will involve a single
laboratory-simulated, anxiety-provoking public speaking challenge.
Also, as in the public speaking component of the Phase 2 study, the
Subjective Units of Distress Scale (
SUDS
) will be used to assess the primary efficacy
endpoint of our pivotal Phase 3 studies of PH94B as a potential
acute treatment of anxiety in adults with SAD. Throughout the six
months ended September 30, 2020, we have been actively engaged in
formalizing processes and procedures for the manufacture of PH94B
for our Phase 3 studies and other nonclinical studies in 2021 and
beyond.
In June 2020, we entered into a strategic licensing and
collaboration agreement for the clinical development and
commercialization of PH94B (the
EverInsight
Agreement
) with
EverInsight Therapeutics Inc. (
EverInsight
),
a biopharmaceutical company focused on developing and
commercializing transformative pharmaceutical products for patients
in Greater China and other parts of Asia
and funded by CBC
Group. In October 2020, it was announced that EverInsight is to
merge with AffaMed Therapeutics, another biopharmaceutical company
funded by CBC Group, which as a combined, complementary entity will
focus on developing and commercializing therapeutics to address
both ophthalmologic and CNS disorders in Greater China and beyond.
Under the terms of the
EverInsight Agreement, EverInsight is responsible for clinical
development, regulatory submissions and commercialization of PH94B
for the treatment of SAD, and potentially other anxiety-related
indications, in key markets in Asia, including markets in Greater
China, South Korea and Southeast Asia (collectively, the
Territory
).
Under the terms of the EverInsight Agreement, in August 2020, we
received a non-dilutive upfront license fee payment of $5.0 million
from EverInsight. Upon successful development and commercialization
of PH94B in the Territory, we are eligible to receive up to $172
million in additional development and commercial milestone
payments, plus royalties on commercial sales of PH94B in the
Territory. After payment of sublicense fees to Pherin pursuant to
our PH94B license from Pherin, and payment of consulting fees
related to consummation of the EverInsight Agreement, we received
net cash proceeds of approximately $4.655
million.
In August 2020, we entered into an underwriting agreement
(the
Underwriting
Agreement
) pursuant to which we
sold, in an underwritten public offering (the
August 2020 Public
Offering
), an aggregate of
15,625,000 shares (the
Shares
) of our common stock for a public offering price
of $0.80 per Share, resulting in gross proceeds to us of
$12,500,000. Under the terms of the Underwriting Agreement, we
granted to the underwriter an over-allotment option
(the
Over-Allotment
Option
) to purchase up to an
additional 2,343,750 Shares (the
Option
Shares
) at a public offering
price of $0.80 per share. The underwriter exercised the
Over-Allotment Option with respect to 2,243,250 Option Shares
(the
Exercised Option
Shares
) and we completed the
sale of the Exercised Option Shares, resulting in additional gross
proceeds to us of $1,794,600. Net proceeds to us from the sale of
the Shares and the Exercised Option Shares, after deducting
underwriting discounts and commissions and offering expenses
payable by us, were approximately $12.9
million.
To satisfy our obligations under the common stock purchase and
registration rights agreements that we entered with Lincoln Park
Capital Fund (
LPC
) in March 2020, we filed a Registration Statement
on Form S-1 (the
LPC Registration
Statement
) with the SEC on
March 31, 2020 (Registration No. 333-237514), which the SEC
declared effective on April 14, 2020 (the
Commencement
Date
). Subsequent to the
Commencement Date and through September 30, 2020, we sold 6,301,995
registered shares of our common stock to LPC and received aggregate
cash proceeds to us of $2,891,200.
As a
matter of course, we continue to minimize, to the greatest extent
possible, cash commitments and expenditures for both internal and
external research and development and general and administrative
services.
To further advance the
nonclinical and clinical development of PH94B, PH10, AV-101 and our
stem cell technology platform, as well as support our operating
activities, we continue to carefully manage our routine operating
costs, including our internal employee related expenses, as well as
external costs relating to regulatory consulting, contract research
and development, investor relations and corporate development,
legal, acquisition and protection of intellectual property, public
company compliance and other professional services and internal
costs.
Results of Operations
Comparison of Three Months Ended September 30, 2020 and
2019
The following table summarizes the results of our operations for
the three months ended September 30, 2020 and 2019 (amounts in
thousands).
|
|
Three
Months Ended September 30,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Sublicense
revenue
|
$
334
|
$
-
|
|
Operating
expenses:
|
|
|
|
Research and
development
|
$
2,358
|
$
4,205
|
|
General and
administrative
|
1,270
|
1,146
|
|
Total
operating expenses
|
3,628
|
5,351
|
|
|
|
|
|
Loss from
operations
|
(3,294
)
|
(5,351
)
|
|
|
|
|
|
Interest income
(expense), net
|
(4
)
|
15
|
|
|
|
|
|
Loss before income
taxes
|
(3,298
)
|
(5,336
)
|
|
Income
taxes
|
-
|
-
|
|
|
|
|
|
Net
loss
|
(3,298
)
|
(5,336
)
|
|
Accrued
dividends on Series B Preferred Stock
|
(347
)
|
(314
)
|
|
Net loss
attributable to common stockholders
|
$
(3,645
)
|
$
(5,650
)
|
Revenue
We recognized $334,000 in sublicense revenue pursuant to the
EverInsight Agreement in the quarter ended September 30, 2020
compared to none in the quarter ended September 30, 2019. As
described more completely in Note 11,
Sublicensing and Collaboration
Agreements
, to our Condensed
Consolidated Financial Statements in Part I of this Report, on June
24, 2020 we entered into the EverInsight Agreement, pursuant to
which we received a non-dilutive upfront license fee payment of
$5.0 million on August 3, 2020. We expect to continue to recognize
revenue pursuant to this payment in future periods during our
fiscal year ending March 31, 2021 and thereafter, as described in
Note 11, referenced previously. While we may potentially receive
additional cash payments and royalties in the future under the
EverInsight Agreement or the 2016 Bayer Agreement (also described
in Note 11,
Sublicensing and Collaborative
Agreements
, to our Condensed
Consolidated Financial Statements in Part I of this Report) in the
event certain performance-based milestones and commercial sales are
achieved, there can be no assurance that the EverInsight Agreement
or the Bayer Agreement will provide additional revenue beyond that
noted or cash payments to us in the near term, or at
all.
Research and Development Expense
Research and development expense decreased from $4.2 million to
$2.4 million for the quarters ended September 30, 2019 and 2020,
respectively, primarily due to the completion of the Elevate Study
in the fourth calendar quarter of 2019. Expenses related to the
Elevate Study and other AV-101 related nonclinical activities
decreased by $2.3 million in the quarter ended September 30, 2020
compared to similar expenses in the quarter ended September 30,
2019. Noncash research and development expenses, primarily
stock-based compensation and depreciation in both periods,
accounted for approximately $122,400 and $167,500 in the quarters
ended September 30, 2020 and 2019, respectively. The following
table indicates the primary components of research and development
expense for each of the periods (amounts in
thousands):
|
|
Three
Months Ended September 30,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Salaries and
benefits
|
$
346
|
$
343
|
|
Stock-based
compensation
|
122
|
167
|
|
Consulting and
other professional services
|
63
|
188
|
|
Technology licenses
and royalties
|
168
|
142
|
|
Project-related
research, licenses and supplies:
|
|
|
|
Elevate study and
other AV-101 expenses
|
220
|
2,521
|
|
PH94B and PH10
development expenses
|
1,284
|
670
|
|
Stem cell and all
other
|
7
|
30
|
|
|
1,511
|
3,221
|
|
Rent
|
135
|
132
|
|
Depreciation
|
12
|
12
|
|
All
other
|
1
|
-
|
|
|
|
|
|
Total Research and
Development Expense
|
$
2,358
|
$
4,205
|
Salaries and benefits expense is essentially unchanged between
periods, reflecting no changes in compensation levels for our Chief
Medical Officer (
CMO
), Chief Scientific Officer (
CSO
), or members of our scientific staff between the
periods. The increase reflects minor increases in the cost of
Company-provided benefits beginning in
mid-2020.
Current year stock-based compensation expense reflects the
amortization of option grants made to our CMO, CSO, members of our
scientific staff and certain clinical and scientific consultants
since August 2018, all earlier outstanding grants having become
fully vested and amortized prior to the quarter ended September 30,
2020. Grants awarded after September 30, 2019, including those
granted during the quarter ended September 30, 2020, account for
approximately $70,000 of expense in the quarter ended September 30,
2020, offset by the expense reduction of approximately $117,000
attributable to certain options granted between June 2016 and
August 2018 that became fully vested and amortized during the
quarter ended September 30, 2020 or earlier.
Consulting and other professional services reflects fees incurred,
generally on an as-needed basis, for project-based scientific,
nonclinical and clinical development and regulatory advisory and
analytical services rendered to us by third parties, including by
members of our Scientific Advisory Board and CNS Clinical and
Regulatory Advisory Board, especially in support of our PH94B and
PH10 development initiatives. Prior year expense included
development support payments to Pherin which terminated in April
2020 under the terms of our PH94B and PH10 license agreements and
analytical services in support of PH94B development which did not
recur in the quarter ended September 30, 2020.
Technology license and royalties expense reflects both recurring
annual license fees, as well as legal counsel and other costs
related to patent prosecution and protection pursuant to our stem
cell technology license agreements, our AV-101 patents, or patents
that we have elected to pursue for commercial purposes. These costs
do not occur ratably throughout the year or between years. In both
periods, this expense includes legal counsel and other costs we
have incurred to advance various patent applications in the U.S.
and numerous foreign countries, primarily with respect to AV-101
and our stem cell technology platform, but also nominally with
respect to our PH94B and PH10 intellectual property
portfolios.
AV-101 project expense for the quarter ended September 30, 2019
reflects the costs of conducting the Elevate Study in MDD,
including various CROs, investigator and clinical site costs, and
CRO support services for AV-101 projects for indications other than
MDD, as well as expense incurred to manufacture additional
quantities of AV-101 for use in potential future clinical
development of AV-101 in a number of potential CNS indications.
AV-101 project expense for the quarter ended September 30, 2020
primarily reflects the cost of certain preclinical studies related
to the use of AV-101 in combination with probenecid, certain AV-101
manufacturing stability studies, and costs incurred to finalize the
results of the Elevate Study for regulatory
submission.
PH94B and PH10 project expenses for the quarters ended September
30, 2020 and 2019 primarily reflect manufacturing and regulatory
initiatives necessary to facilitate Phase 3 clinical development of
PH94B for acute treatment of anxiety in patients with SAD and Phase
2B development of PH10 for MDD. Manufacturing, formulation and
analysis of sufficient quantities of API and drug product are
currently the critical path items for advancing the further
clinical development of both PH94B and PH10, with costs for PH94B
significantly exceeding those for PH10 in the quarter ended
September 30, 2020.
Stem cell and other project related expenses reflects costs
associated with drug rescue applications of our stem cell
technology in both years. These expenses are typically incurred by
our in-house scientific personnel. As a result of shelter-in-place
and remote working requirements related to the ongoing COVID-19
pandemic, such expenses have been reduced to an insignificant level
in the quarter ended September 30, 2020.
Rent expense for both periods presented reflects our implementation
of ASC 842 effective April 1, 2019 and the requirement to
recognize, as an operating lease related to our South San Francisco
office and laboratory facility, a right-of-use asset and a lease
liability, both of which must be amortized over the expected lease
term. The underlying lease reflects commercial property rents
prevalent in the South San Francisco real estate market at the time
of our November 2016 lease amendment extending the lease of our
headquarters facilities in South San Francisco by five years from
July 31, 2017 to July 31, 2022. In implementing ASC 842, we also
projected that we would exercise a five-year option to extend our
tenancy under the lease when it expires in 2022, which extension
would be subject to projected market rent conditions at that time.
We allocate total rent expense for our South San Francisco facility
between research and development expense and general and
administrative expense based generally on square footage dedicated
to each function. Refer to Note 10,
Commitments and
Contingencies
, in the
accompanying Condensed Consolidated Financial Statements in Part I
of this Report for additional information. Following our
implementation of ASC 842, changes in rent expense between periods
are primarily related to changes in such items as common area
maintenance fees, taxes and insurance which are generally assessed
to us by our landlord.
General and Administrative Expense
General and administrative expense increased modestly to
approximately $1.3 million from approximately $1.1 million for the
quarters ended September 30, 2020 and 2019, respectively. Noncash
general and administrative expense, $337,000 in the quarter ended
September 30, 2020, increased from $272,000 in the quarter ended
September 30, 2019 primarily due to the current year increase in
stock-based compensation and amortization of EverInsight deferred
contract acquisition costs offset by the prior year amortization of
the fair value of common stock or warrants granted to service
providers. The following table indicates the primary components of
general and administrative expense for each of the periods (amounts
in thousands):
|
|
Three
Months Ended September 30,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Salaries and
benefits
|
$
344
|
$
340
|
|
Stock-based
compensation
|
289
|
226
|
|
Board fees and
other consulting services
|
59
|
46
|
|
Legal, accounting
and other professional fees
|
116
|
90
|
|
Investor and public
relations
|
155
|
197
|
|
Insurance
|
116
|
88
|
|
Travel
expenses
|
-
|
6
|
|
Sublicense contract
amortized acquisition expense
|
31
|
-
|
|
Rent and
utilities
|
87
|
87
|
|
All other
expenses
|
73
|
66
|
|
|
|
|
|
|
$
1,270
|
$
1,146
|
Salaries and benefits expense is essentially unchanged between
periods, reflecting no changes in compensation levels for our Chief
Executive Officer (
CEO
), Chief Financial Officer (
CFO
), Vice President-Corporate Development
(
VP
Corporate Development
) and
immaterial increases in non-officer compensation and the cost of
Company-provided benefits beginning in
mid-2020.
Current year stock-based compensation expense reflects the
amortization of option grants made to our CEO, CFO, VP Corporate
Development, administrative staff, independent members of our Board
and certain consultants since September 2016, all earlier grants
having become fully vested and amortized. The single grant made in
September 2016 reached fully vested and amortized status during the
quarter ended September 30, 2020. Grants awarded after September
30, 2019, including those granted during the quarter ended
September 30, 2020, account for approximately $160,000 of expense
in the quarter ended September 30, 2020, offset by an expense
reduction of approximately $95,000 attributable to certain options
granted between September 2016 and August 2018 that became fully
vested and amortized during the quarter ended September 30, 2020 or
earlier.
Board fees and other consulting services represents, in both
periods, fees paid as consideration for Board and Board Committee
services to the independent members of our Board of Directors and,
in the current year, other consulting service fees related to
commercial market analyses of both PH94B and PH10.
Legal, accounting and other professional fees for the quarters
ended September 30, 2020 and 2019 includes expenses related to
routine legal services as well as accounting services related to
the quarterly review of our current year financial statements. In
2020, we incurred additional consulting fees related to revenue
recognition accounting for the EverInsight Agreement and, in 2019,
we incurred fees attributable to services provided by an
international business development consultant.
Investor and public relations expense includes the fees of our
various external service providers for a broad spectrum of investor
relations, public relations and social media services, and well as
market awareness and strategic advisory and support functions and
initiatives that, in 2019, included numerous in-person meetings in
multiple U.S. and certain foreign markets and other communication
activities focused on expanding global market awareness of the
Company, our CNS product candidate pipeline and technologies and
our research and development programs, including among registered
investment professionals and investment advisors, individual and
institutional investors, and prospective strategic collaborators
for development and commercialization of our product candidates in
major pharmaceutical markets worldwide. During the current fiscal
year, we have curtailed the number of external service providers
engaged in these activities compared to the prior year. Further, in
the quarter ended September 30, 2019, in addition to cash fees and
expenses we incurred for such activities, we recognized
approximately $26,500 of noncash expense attributable to the
amortization of the fair value of stock and warrants granted in
previous periods to various corporate development, investor
relations, and market awareness service providers. No such noncash
expense was incurred in the quarter ended September 30,
2020.
The
increase in insurance expense is primarily attributable to the
market-rate increase in the premium for our directors and officers
liability insurance upon renewal of our policy in May
2020.
In the quarter ended September 30, 2019, travel expense reflects
limited costs associated with in-person management presentations
and meetings held in the U.S. with existing and potential
individual and institutional investors, investment professionals
and advisors, media, and securities analysts. As a result of
periodic shelter-in-place restrictions and travel and workplace
precautions and restrictions associated with the ongoing COVID-19
pandemic, during most of 2020, such meetings have generally
occurred remotely without requiring in-person business travel by
our executives.
Rent expense for both periods presented reflects our implementation
of ASC 842 effective April 1, 2019 and the requirement to
recognize, as an operating lease related to our South San Francisco
office and laboratory facility, a right-of-use asset and a lease
liability, both of which must be amortized over the expected lease
term. The underlying lease reflects commercial property rents
prevalent in the South San Francisco real estate market at the time
of our November 2016 lease amendment extending the lease of our
headquarters facilities in South San Francisco by five years from
July 31, 2017 to July 31, 2022. In implementing ASC 842, we also
projected that we would exercise a five-year option to extend our
tenancy under the lease when it expires in 2022, which extension
would be subject to projected market rent conditions at that time.
We allocate total rent expense for our South San Francisco facility
between research and development expense and general and
administrative expense based generally on square footage dedicated
to each function. Refer to Note 10,
Commitments and
Contingencies
, in the
accompanying Condensed Consolidated Financial Statements in Part I
of this Report for additional information. Following our
implementation of ASC 842, changes in rent expense between periods
are primarily related to changes in such items as common area
maintenance fees, taxes and insurance which are generally assessed
to us by our landlord.
Beginning in the quarter ended September 30, 2020, we began to
amortize the deferred contract acquisition costs related to our
acquisition of the EverInsight Agreement, composed of the
c
ash payment of $220,000 for sublicense fees which we were
obligated to make pursuant to our PH94B license from Pherin, and
the $125,000 cash payment and $125,000 fair value of common stock
issued for consulting services, in each case exclusively related to
our acquisition of the EverInsight Agreement. The contract
acquisition costs are amortized over the expected term of the
services to be provided under the EverInsight Agreement. During the
quarter ended September 30, 2020, we amortized $31,400 of contract
acquisition costs.
Interest and Other Expenses
Interest expense, net totaled $3,900 for the quarter ended
September 30, 2020 compared to interest income, net of interest
expense of $15,400 for the quarter ended September 30, 2019. The
following table indicates the primary components of interest income
and expense for each of the periods (amounts in
thousands):
|
|
Three
Months Ended September 30,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Interest
income
|
$
2
|
$
19
|
|
Interest expense on
financing lease, insurance premium financing notes
|
|
|
|
and
Payroll Protection Program loan
|
(6
)
|
(4
)
|
|
|
|
|
|
Interest income
(expense), net
|
$
(4
)
|
$
15
|
Following
the completion of our underwritten public offering in February
2019, which generated $11.5 million in gross proceeds to us, during
the quarter ended June 30, 2019, we deposited a portion of such
proceeds in interest-bearing cash equivalent accounts and earned
interest income. As a result of the decline in market interest
rates during 2020 compared to 2019 and a reduction in the average
amount of cash deposited in such accounts, we earned $2,000 of
interest on deposited funds in the quarter ended September 30,
2020.
Interest expense in both periods
relates to interest paid on insurance premium financing notes and
on our financing lease of office equipment subject to ASC 842, and
in 2020, interest accrued on our Payroll Protection Program
loan.
We
recognized $347,200 and
$313,800 for
the quarters ended September 30, 2020 and 2019, respectively,
representing the 10% cumulative dividend accrued on outstanding
shares of our Series B 10% Convertible Preferred Stock
(
Series B
Preferred
) as an additional
deduction in arriving at net loss attributable to common
stockholders in the
accompanying Condensed Consolidated
Statement of Operations and Comprehensive Loss included in Part I
of this Report. There have been no conversions of outstanding
shares of Series B Preferred stock into shares of our common stock
since August 2016.
Comparison of Six Months Ended September 30,2020 and
2019
The following table summarizes the results of our operations for
the six months ended September 30, 2020 and 2019 (amounts in
thousands).
|
|
Six
Months Ended
September
30,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Sublicense
revenue
|
$
334
|
$
-
|
|
Operating
expenses:
|
|
|
|
Research and
development
|
4,090
|
8,519
|
|
General and
administrative
|
2,660
|
3,056
|
|
Total
operating expenses
|
6,750
|
11,575
|
|
|
|
|
|
Loss from
operations
|
(6,416
)
|
(11,575
)
|
|
|
|
|
|
Interest income
(expense), net
|
(7
)
|
32
|
|
Other
income
|
1
|
-
|
|
|
|
|
|
Loss before income
taxes
|
(6,422
)
|
(11,543
)
|
|
Income
taxes
|
(3
)
|
(2
)
|
|
|
|
|
|
Net
loss
|
(6,425
)
|
(11,545
)
|
|
Accrued
dividend on Series B Preferred Stock
|
(683
)
|
(616
)
|
|
Net loss
attributable to common stockholders
|
$
(7,108
)
|
$
(12,161
)
|
Revenue
We recognized $334,000 in sublicense revenue pursuant to the
EverInsight Agreement in the six months ended September 30, 2020
compared to none in the six months ended September 30, 2019. As
described more completely in Note 11,
Sublicensing and Collaboration
Agreements
, to our Condensed
Consolidated Financial Statements in Part I of this Report, in June
2020, we entered into the EverInsight Agreement, pursuant to which
we received a non-dilutive upfront license fee payment of $5.0
million in August 2020. We expect to continue to recognize revenue
pursuant to this payment in future periods during our fiscal year
ending March 31, 2021 and thereafter, as described in Note 11,
referenced previously. While we may potentially receive additional
cash payments and royalties in the future under the EverInsight
Agreement or the 2016 Bayer Agreement (also described in Note
11,
Sublicensing and Collaborative
Agreements
, to our Condensed
Consolidated Financial Statements in Part I of this Report) in the
event certain performance-based milestones and commercial sales are
achieved, there can be no assurance that the EverInsight Agreement
or the Bayer Agreement will provide additional revenue beyond that
noted or cash payments to us in the near term, or at
all.
Research and Development Expense
Research and development expense decreased from $8.5 million to
$4.1 million for the six months ended September 30, 2019 and 2020,
respectively, primarily due to the completion of the Elevate Study
in the fourth calendar quarter of 2019. Expenses related to the
Elevate Study and other AV-101 related nonclinical activities
decreased by $4.8 million in the six months ended September 30,
2020 compared to expense in the six months ended September 30,
2019. Noncash research and development expenses, primarily
stock-based compensation and depreciation in both periods,
accounted for approximately $391,000 and $607,000 in the six months
ended September 30, 2020 and 2019, respectively. The following
table indicates the primary components of research and development
expense for each of the periods (amounts in
thousands):
|
|
Six Months Ended
September 30,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Salaries
and benefits
|
$
694
|
$
683
|
|
Stock-based
compensation
|
349
|
558
|
|
Consulting
and other professional services
|
156
|
324
|
|
Technology
licenses and royalties
|
276
|
309
|
|
Project-related
research, licenses and supplies:
|
|
|
|
Elevate
study and other AV-101 expenses
|
385
|
5,187
|
|
PH94B
and PH10 development expenses
|
1,919
|
1,094
|
|
Stem
cell and all other
|
12
|
72
|
|
|
2,316
|
6,353
|
|
Rent
|
273
|
268
|
|
Depreciation
|
24
|
24
|
|
All
other
|
2
|
-
|
|
|
|
|
|
Total
Research and Development Expense
|
$
4,090
|
$
8,519
|
Salaries and benefits expense is essentially unchanged between
periods, reflecting no changes in compensation levels for our CMO,
CSO, or members of our scientific staff between the periods. The
increase reflects the return from leave of absence of one member of
our scientific staff during the quarter ended June 30, 2019 and
minor increases in the cost of Company-provided benefits beginning
in mid-2020.
Current year stock-based compensation expense reflects the
amortization of option grants made to our CMO, CSO, members of our
scientific staff and certain clinical and scientific consultants
since June 2016, all earlier outstanding grants having become fully
vested and amortized prior to September 30, 2020. Grants awarded
after September 30, 2019, including those granted during the six
months ended September 30, 2020, account for approximately $171,000
of expense in the six months ended September 30, 2020, offset by an
expense reduction of approximately $326,000 attributable to certain
options granted between June 2016 and August 2018 that became fully
vested and amortized during the six months ended September 30, 2020
or earlier. Stock compensation expense is further reduced in the
six months ended September 30, 2020 by approximately $58,000 due to
the absence of the impact of immediate vesting attributable to
certain options granted in May 2019. Expense attributable to recent
option grants is generally being amortized over two-year to
three-year vesting periods, with essentially all of the grants made
since May 2019, including those made in the six months ended
September 30, 2020, being 25% vested and expensed upon grant, in
accordance with the terms of the respective grants.
Consulting and other professional services reflects fees incurred,
generally on an as-needed basis, for project-based scientific,
nonclinical and clinical development and regulatory advisory and
analytical services rendered to us by third parties, including by
members of our Scientific Advisory Board and CNS Clinical and
Regulatory Advisory Board, especially in support of our PH94B and
PH10 development initiatives. Current year expense reflects a
reduction of $50,000 in development support payments to Pherin
which terminated in April 2020 under the terms of our PH94B and
PH10 license agreements and an $88,000 reduction in analytical
services in support of PH94B and PH10 development compared to the
prior year.
Technology license and royalties expense reflects both recurring
annual license fees, as well as legal counsel and other costs
related to patent prosecution and protection pursuant to our stem
cell technology license agreements, our AV-101 patents, or patents
that we have elected to pursue for commercial purposes. These costs
do not occur ratably throughout the year or between years. In both
periods, this expense includes legal counsel and other costs we
have incurred to advance various patent applications in the U.S.
and numerous foreign countries, primarily with respect to AV-101
and our stem cell technology platform, but also nominally with
respect to our PH94B and PH10 intellectual property
portfolios.
AV-101 project expense for the six months ended September 30, 2019
reflects the costs of actively conducting the Elevate Study in MDD,
including various CROs, investigator and clinical site costs, and
CRO support services for AV-101 projects for indications other than
MDD, as well as expense incurred to manufacture additional
quantities of AV-101 for use in potential future clinical
development of AV-101 in a number of potential CNS indications.
AV-101 project expense for the six months ended September 30, 2020
primarily reflects the cost of certain preclinical studies related
to the use of AV-101 with adjunctive probenecid and certain AV-101
manufacturing stability studies, and costs incurred to finalize the
results of the Elevate Study for regulatory
submission.
PH94B and PH10 project expenses for the six months ended September
30, 2020 and 2019 primarily reflect manufacturing and regulatory
initiatives necessary to facilitate Phase 3 clinical development of
PH94B for acute treatment of anxiety in patients with SAD and Phase
2B development of PH10 for MDD. Manufacturing, formulation and
analysis of sufficient quantities of API and drug product are
currently the critical path items for further advancing the
nonclinical and clinical development of both PH94B and PH10, with
costs for with costs for PH94B significantly exceeding those for
PH10 in the quarter ended September 30, 2020. From time to time,
during the six months ended September 30, 2020, production and
analytical processes for both of these product candidates have been
delayed due to the ongoing COVID-19 pandemic.
Stem cell and other project related expenses reflects costs
associated with drug rescue applications of our stem cell
technology in both years. These expenses are typically incurred by
our in-house scientific personnel. As a result of shelter-in-place
and remote working requirements related to the ongoing COVID-19
pandemic, such expenses have been reduced to an insignificant level
during the six months ended September 30, 2020.
Rent expense for both periods presented reflects our implementation
of ASC 842 effective April 1, 2019 and the requirement to
recognize, as an operating lease related to our South San Francisco
office and laboratory facility, a right-of-use asset and a lease
liability, both of which must be amortized over the expected lease
term. The underlying lease reflects commercial property rents
prevalent in the South San Francisco real estate market at the time
of our November 2016 lease amendment extending the lease of our
headquarters facilities in South San Francisco by five years from
July 31, 2017 to July 31, 2022. In implementing ASC 842, we also
projected that we would exercise a five-year option to extend our
tenancy under the lease when it expires in 2022, which extension
would be subject to projected market rent conditions at that time.
We allocate total rent expense for our South San Francisco facility
between research and development expense and general and
administrative expense based generally on square footage dedicated
to each function. Refer to Note 10,
Commitments and
Contingencies
, in the
accompanying Condensed Consolidated Financial Statements in Part I
of this Report for additional information. Following our
implementation of ASC 842, the increase in rent expense between
periods is primarily related to increases in such items as common
area maintenance fees, taxes and insurance which are generally
assessed to us by our landlord.
General and Administrative Expense
General and administrative expense decreased to approximately $2.7
million from approximately $3.1 million for the six months ended
September 30, 2020 and 2019, respectively. Noncash general and
administrative expense, $804,000 in the six months ended September
30, 2020, decreased from $1,044,000 in the six months ended
September 30, 2019 primarily due to decreases in stock-based
compensation and the noncash components of investor and public
relations expense attributable to the amortization of the fair
value of common stock or warrants granted to service providers,
offset by the amortization of EverInsight deferred contract
acquisition costs. 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,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Salaries and
benefits
|
$
692
|
$
684
|
|
Stock-based
compensation
|
737
|
898
|
|
Board fees and
other consulting services
|
105
|
92
|
|
Legal, accounting
and other professional fees
|
311
|
369
|
|
Investor and public
relations
|
267
|
501
|
|
Insurance
|
218
|
170
|
|
Travel
expenses
|
4
|
36
|
|
Rent and
utilities
|
177
|
177
|
|
Sublicense contract
amortized acquisition expense
|
31
|
|
|
All other
expenses
|
118
|
129
|
|
|
|
|
|
|
$
2,660
|
$
3,056
|
Salaries and benefits expense is essentially unchanged between
periods, reflecting no changes in compensation levels for our CEO,
CFO, VP Corporate Development and immaterial increases in
non-officer compensation and Company-provided benefits beginning in
mid-2020.
Current year stock-based compensation expense reflects the
amortization of option grants made to our CEO, CFO, VP Corporate
Development, administrative staff, independent members of our Board
and certain consultants since June 2016, all earlier grants having
become fully vested and amortized prior to September 30, 2020.
Grants awarded after September 30, 2019, including those granted
during the six months ended September 30, 2020, account for
approximately $383,000 of expense in the six months ended September
30, 2020, offset by an expense reduction of approximately $444,000
attributable to certain options granted between June 2016 and
August 2018 that became fully vested and amortized during the six
months ended September 30, 2020 or earlier. Stock compensation
expense is further reduced in the six months ended September 30,
2020 by approximately $98,000 due to the absence of the impact of
immediate vesting attributable to certain options granted in May
2019. Expense attributable to recent option grants is generally
being amortized over two-year to three-year vesting periods, with
essentially all of the grants made since May 2019, including those
made during the six months ended September 30, 2020, being 25%
vested and expensed upon grant, in accordance with the terms of the
respective grants.
Board fees and other consulting services represents, in both
periods, fees paid as consideration for Board and Board Committee
services to the independent members of our Board of Directors and,
additionally in the current year, other consulting service fees
related to commercial analyses of both PH94B and PH10.
Legal, accounting and other professional fees for the six months
ended September 30, 2020 and 2019 includes expense related to
routine legal fees as well as the accounting expense related to the
annual audit of our prior year financial statements and the
quarterly review of our first quarter current year financial
statements. In 2020, we incurred additional consulting fees related
to revenue recognition accounting for the EverInsight Agreement
and, in 2019, we incurred fees attributable to services provided by
an international business development consultant.
Investor and public relations expense includes the fees of our
various external service providers for a broad spectrum of investor
relations, public relations and social media services, and well as
market awareness and strategic advisory and support functions and
initiatives that, in 2019, included numerous in-person meetings in
multiple U.S. and certain foreign markets and other communication
activities focused on expanding global market awareness of the
Company, our CNS product candidate pipeline and technologies and
our research and development programs, including among registered
investment professionals and investment advisors, individual and
institutional investors, and prospective strategic collaborators
for development and commercialization of our product candidates in
major pharmaceutical markets worldwide. During the six months ended
September 30, 2020, we curtailed the number of external service
providers engaged in these activities compared to the prior year.
Further, in the six months ended September 30, 2019, in addition to
cash fees and expenses we incurred for such activities, we
recognized approximately $105,900 of noncash expense attributable
to the amortization of the fair value of stock and warrants granted
in previous periods to various corporate development, investor
relations, and market awareness service providers. No such noncash
expense was incurred in the six months ended September 30,
2020.
The
increase in insurance expense is primarily attributable to the
market-rate increase in the premium for our directors and officers
liability insurance upon renewal of our policy in May
2020.
In the six months ended September 30, 2019, travel expense reflects
costs associated with in-person management presentations and
meetings held in multiple U.S. markets and certain international
markets with existing and potential individual and institutional
investors, investment professionals and advisors, media, and
securities analysts, as well as various investor relations, market
awareness and corporate development and partnering initiatives and
in monitoring the progress of our Elevate Study As a result of
periodic shelter-in-place restrictions and travel and workplace
precautions and restrictions associated with the ongoing COVID-19
pandemic, during six months ended September 30, 2020, such meetings
have occurred remotely without requiring in-person business travel
by our executives.
Rent expense for both periods presented reflects our implementation
of ASC 842 effective April 1, 2019 and the requirement to
recognize, as an operating lease related to our South San Francisco
office and laboratory facility, a right-of-use asset and a lease
liability, both of which must be amortized over the expected lease
term. The underlying lease reflects commercial property rents
prevalent in the South San Francisco real estate market at the time
of our November 2016 lease amendment extending the lease of our
headquarters facilities in South San Francisco by five years from
July 31, 2017 to July 31, 2022. In implementing ASC 842, we also
projected that we would exercise a five-year option to extend our
tenancy under the lease when it expires in 2022, which extension
would be subject to projected market rent conditions at that time.
We allocate total rent expense for our South San Francisco facility
between research and development expense and general and
administrative expense based generally on square footage dedicated
to each function. Refer to Note 10,
Commitments and
Contingencies
, in the
accompanying Condensed Consolidated Financial Statements in Part I
of this Report for additional information. Following our
implementation of ASC 842, increases or decreases in rent expense
between periods are primarily related to changes in such items as
common area maintenance fees, taxes and insurance which are
generally assessed to us by our landlord.
Beginning in the quarter ended September 30, 2020, we began to
amortize the deferred contract acquisition costs related to our
acquisition of the EverInsight Agreement, composed of the
c
ash payments of $220,000 for sublicense fees which we were
obligated to make pursuant to our PH94B license from Pherin, and
$125,000 of cash fees and $125,000 fair value of common stock
issued for consulting services, in each case exclusively related to
our acquisition of the EverInsight Agreement. The contract
acquisition costs are amortized over the expected term of the
services to be provided under the EverInsight Agreement. During the
six months ended September 30, 2020, we have amortized $31,400 of
contract acquisition costs.
Interest and Other Expenses
Interest expense, net totaled $7,100 for the six months ended
September 30, 2020 compared to interest income, net of interest
expense of $31,900 for the six months ended September 30, 2019. 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,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Interest
income
|
$
2
|
$
39
|
|
Interest expense on
financing lease, insurance premium financing notes
|
|
|
|
and
Payroll Protection Program loan
|
(9
)
|
(7
)
|
|
|
|
|
|
Interest income
(expense), net
|
$
(7
)
|
$
32
|
Following
the completion of our underwritten public offering in February
2019, which generated $11.5 million in gross proceeds to us, during
the quarter ended June 30, 2019, we deposited a portion of such
proceeds in interest-bearing cash equivalent accounts and earned
interest income. As a result of the decline in market interest
rates during 2020 compared to 2019 and a reduction in the average
amount of cash deposited in such accounts, we have earned nominal
interest on deposited funds in the six months ended September 30,
2020.
Interest expense in both periods relates to
interest paid on insurance premium financing notes and on our
financing lease of office equipment subject to ASC 842, and in
2020, interest accrued on our Payroll Protection Program
loan.
We
recognized $683,000 and
$616,300 for
the six months ended September 30, 2020 and 2019, respectively,
representing the 10% cumulative dividend accrued on outstanding
shares of our Series B 10% Convertible Preferred Stock
(
Series B
Preferred
) as an additional
deduction in arriving at net loss attributable to common
stockholders in the
accompanying Condensed Consolidated
Statement of Operations and Comprehensive Loss included in Part I
of this Report. There have been no conversions of outstanding
shares of Series B Preferred stock into shares of our common stock
since August 2016.
Liquidity and Capital Resources
Since our inception in May 1998 through September 30, 2020, we have
financed our operations and technology acquisitions primarily
through the issuance and sale of our equity and debt securities for
cash proceeds of approximately $99.2 million, as well as from an
aggregate of approximately $22.7 million of government research
grant awards (excluding the fair market value of government
sponsored and funded clinical trials), strategic collaboration
payments, intellectual property licensing and other revenues.
Additionally, we have issued equity securities with an approximate
value at issuance of $38.2 million in noncash acquisitions of
product licenses and in settlements of certain liabilities,
including liabilities for professional services rendered to us or
as compensation for such services.
At September 30, 2020, we had cash and cash equivalents of
approximately $15.4 million. As described more completely in Note
8,
Capital
Stock
, to our Condensed
Consolidated Financial Statements in Part I of this Report, on
August 2, 2020, we entered into an underwriting agreement
(the
Underwriting
Agreement
) pursuant to which we
sold, in an underwritten public offering (the
August 2020 Public
Offering
), an aggregate of
15,625,000 shares (the S
hares
) of our common stock for a public offering price
of $0.80 per Share, resulting in gross proceeds to us of
$12,500,000. The August 2020 Public Offering closed on August 5,
2020. Under the terms of the Underwriting Agreement, we granted to
the underwriter an over-allotment option (the
Over-Allotment
Option
) to purchase up to an
additional 2,343,750 Shares (the
Option
Shares
) at a public offering
price of $0.80 per share. On August 5, 2020, the underwriter
exercised the Over-Allotment Option with respect to 2,243,250
Option Shares (the
Exercised Option
Shares
). We completed the sale
of the Exercised Option Shares on August 7, 2020, resulting in
additional gross proceeds to us of $1,794,600. Net proceeds to us
from the sale of the Shares and the Exercised Option Shares, after
deducting underwriting discounts and commissions and offering
expenses payable by us, were approximately $12.9
million.
As more completely described in Note 11,
Sublicensing and
Collaboration Agreements
,
to our Condensed Consolidated Financial Statements
in Part I of this Report,
in June 2020, we entered into a
strategic licensing and collaboration agreement for the clinical
development and commercialization of PH94B for acute treatment of
anxiety in adults with SAD and other potential anxiety-related
disorders (the
EverInsight
Agreement
), with
EverInsight Therapeutics Inc.,
(
EverInsight
),
a biopharmaceutical company focused on
developing and commercializing transformative pharmaceutical
products for patients in Greater China and other parts of
Asia,
and funded by CBC Group, global venture capital firm.
In October 2020 it was announced that EverInsight is to merge with
AffaMed Therapeutics, another biopharmaceutical company funded by
CBC Group, which as a combined, complementary entity would focus on
developing and commercializing therapeutics to address
ophthalmologic and CNS disorders in Greater China and beyond.
Under the terms of the
EverInsight Agreement, EverInsight agreed to make a non-dilutive
upfront license payment of $5.0 million to us, which we received in
August 2020. Upon successful development and commercialization of
PH94B, we are also eligible to receive up to $172 million in
additional development and commercial milestone payments, plus
royalties on commercial sales in the licensed territory. The $5.0
million upfront license payment resulted in net cash proceeds to us
of approximately $4.655 million after the sublicense payment we
agreed to make to Pherin Pharmaceuticals, Inc. (
Pherin
)
pursuant to our PH94B license from Pherin, and payment for
consulting services related to the EverInsight
Agreement.
As more completely described in Note 8,
Capital
Stock
, to our Condensed
Consolidated Financial Statements in Part I of this Report, on
March 24, 2020, we entered into a purchase agreement and a
registration rights agreement with Lincoln Park Capital Fund
(
Lincoln
Park
) pursuant to which Lincoln
Park committed to purchase up to $10,250,000 of our common stock at
market-based prices over a period of 24 months (the
LPC
Agreement
). To satisfy our
obligations under the registration rights agreement, we filed a
Registration Statement on Form S-1 (the
LPC Registration
Statement
) with the Securities
and Exchange Commission (the
SEC
) on March 31, 2020, which the SEC declared
effective on April 14, 2020 (Registration No. 333-237514).
Subsequent to the effectiveness of the LPC Registration Statement,
through September 30, 2020, we sold 6,301,995 registered shares of
our common stock to Lincoln Park and received gross cash proceeds
of $2,891,200. At September 30, 2020 and through the date of this
Report, there are approximately 2.04 million registered shares of
our common stock remaining available for sale under the LPC
Agreement. We have no obligation to sell any additional shares to
LPC under the LPC Agreement.
Going Concern
Although the transactions described above have generated
approximately $20.0 million in net cash proceeds to us between
April 1, 2020 and the date of this Report, we believe it is
probable that our cash position at September 30, 2020, which
reflects such net proceeds will not be sufficient to fund our
planned operations for the twelve months following the issuance of
these financial statements, which raises substantial doubt that we
can continue as a going concern. During the next twelve months,
subject to securing appropriate and adequate additional financing,
we plan to (i) prepare for and launch
a pivotal
Phase 3 clinical trial of PH94B for acute
treatment of anxiety in adult patients with SAD, (ii) prepare for
and launch a small exploratory
Phase 2A study of PH94B for
acute treatment of adult patients with adjustment disorder, (iii)
prepare for and potentially launch small exploratory Phase 2A
clinical studies of PH94B in postpartum anxiety, post-traumatic
stress disorder and/or pre-procedural (pre-MRI) anxiety, (iv)
assess and potentially launch a Phase 1 study of AV-101 in
combination with probenecid to enable exploratory Phase 2A
development of the combination for treatment of CNS disorders,
and (v) conduct several nonclinical
studies involving PH94B, PH10 and AV-101. When necessary and
advantageous, we plan to raise additional capital through the sale
of our equity securities in one or more private placements to
accredited investors, public offerings and/or in strategic
licensing and development collaborations involving one or more of
our drug candidates in markets outside the United States, similar
to the EverInsight Agreement. Subject to certain restrictions, our
Registration Statement on Form S-3 (Registration No. 333-234025)
(the
S-3
Registration Statement
), which
became effective on October 7, 2019 and was used to register the
Shares and the Exercised Option Shares sold in the August 2020
Public Offering, remains available for future sales of our equity
securities in one or more public offerings from time to time. While
we may make additional sales of our equity securities under the S-3
Registration Statement, we do not have an obligation to do so.
Further, at September 30, 2020 and through the date of this Report,
there are approximately 2.04 million registered shares of our
common stock remaining available for sale under the LPC Agreement.
We have no obligation to sell any additional shares to LPC under
the LPC Agreement.
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. In addition to the
potential sale of our equity securities, we may also seek to enter
research, development and/or commercialization collaborations
similar to the EverInsight Agreement and the Bayer Agreement that
could generate revenue or provide funding, including non-dilutive
funding, for development of one or more of our CNS product
candidate programs. We may also seek additional government grant
awards or agreements similar to our prior agreement with the U.S.
National Institutes of Health (
NIH
), Baylor University and the U.S. Department of
Veterans Affairs in connection with certain government-sponsored
studies of AV-101. Such strategic collaborations may provide
non-dilutive resources to advance our strategic initiatives while
reducing a portion of our future cash outlays and working capital
requirements. We may also pursue intellectual property arrangements
similar to the EverInsight Agreement and the Bayer Agreement with
other parties. Although we may seek additional collaborations that
could generate revenue and/or provide non-dilutive funding for
development of our product candidates, as well as new government
grant awards and/or agreements, no assurance can be provided that
any such collaborations, awards or agreements will occur in the
future.
Our future working capital requirements will depend on many
factors, including, without limitation, potential impacts related
to the current COVID-19 pandemic, the scope and nature of
opportunities related to our success and the success of certain
other companies in nonclinical and clinical trials, including our
development and commercialization of our current product candidates
and various applications of our stem cell technology platform, the
availability of, and our ability to obtain, government grant awards
and agreements, and our ability to enter into collaborations on
terms acceptable to us. To further advance the clinical development
of PH94B, PH10, and AV-101 and, to a lesser extent, our stem cell
technology platform, as well as support our operating activities,
we plan to continue to carefully manage our routine operating
costs, including our employee headcount and related expenses, as
well as costs relating to regulatory consulting, contract
manufacturing, research and development, investor and public
relations, business development, legal, intellectual property
acquisition and protection, public company compliance and other
professional services and operating costs.
Notwithstanding the foregoing, there can be no assurance that our
current strategic collaborations under the EverInsight Agreement
and the Bayer Agreement will generate revenue from future potential
milestone payments, or that future financings or government or
other strategic collaborations will be available to us in
sufficient amounts, in a timely manner, or on terms acceptable to
us, if at all. If we are unable to obtain substantial additional
financing on a timely basis when needed in 2021 or thereafter, our
business, financial condition, and results of operations may be
harmed, the price of our stock may decline, we may be required to
reduce, defer, or discontinue certain of our research and
development activities and we may not be able to continue as a
going concern. The Condensed Consolidated Financial
Statements included in Part I of this Report do not include any
adjustments that might result from the negative outcome of this
uncertainty.
Cash and Cash Equivalents
The following table summarizes changes in cash and cash equivalents
for the periods stated (in thousands):
|
|
Six Months Ended
September 30,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Net
cash used in operating activities
|
$
(1,803
)
|
$
(8,898
)
|
|
Net
cash used in investing activities
|
(99
)
|
-
|
|
Net
cash provided by (used in) financing activities
|
15,946
|
(130
)
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
14,044
|
(9,028
)
|
|
Cash
and cash equivalents at beginning of period
|
1,355
|
13,100
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
$
15,399
|
$
4,072
|
The decrease in cash used in operations results primarily from the
completion of the Elevate Study, which commenced at the end of the
first calendar quarter of 2018 and was completed during the fourth
calendar quarter of 2019. Cash used in operations during the six
months ended September 30, 2020 was reduced by the August 2020
receipt of the $5.0 million nondilutive upfront payment from
EverInsight under the EverInsight Agreement while cash used in
nonclinical development and manufacturing advancements related to
PH94B and PH10 increased during the current fiscal year compared to
the prior year. Cash used in investing activities in the current
fiscal year includes approximately $96,000 for the purchase of
certain manufacturing equipment acquired for use by our
contract development and manufacturing organization
in connection with the production of PH94B drug
product. The equipment has not yet been fully validated or placed
in service at September 30, 2020. Cash provided by financing
activities for the six months ended September 30, 2020 primarily
reflects net cash proceeds to us from sales of our common stock
pursuant to the August 2020 Public Offering, the LPC Agreement and
the Spring 2020 Private Placement, as well as from the issuance of
the Payroll Protection Plan note and the exercise of outstanding
warrants, net of routine insurance premium financing note and
financing lease payments. Cash used in financing activities during
the six months ended September 30, 2019 primarily reflects routine
insurance premium financing note and financing lease
payments.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Recent Accounting Pronouncements
For information relating to recent accounting pronouncements and
the expected impact of such pronouncements on our condensed
consolidated financial statements, see Note 3 of the Notes to
Condensed Consolidated Financial Statements included In Part I of
this Report.
|
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, 2020 filed with the Securities and Exchange Commission on June
29, 2020, 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: OT
H
ER
INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Risk Factor Summary
Our business is subject to substantial risk and an investment in
our securities involves various risks. Some of the material risks
include those set forth below. You should consider carefully these
risks, and those discussed under “Risk Factors” below,
before investing in our securities. These risks include, among
others:
●
The
COVID-19 pandemic has had, and continues to have, an impact on our
business, including delays in manufacturing of certain drug
substance and drug products;
●
we
are a development stage biopharmaceutical company with no current
revenues or approved products, and limited experience developing or
commercializing new drug, biological and/or regenerative medicine
candidates, which makes it difficult to assess our future
viability;
●
we
depend heavily on the success of our three CNS drug candidates
PH94B, PH10 and AV-101, and we cannot be certain that we will be
able to obtain regulatory approval for, or successfully
commercialize, any of our current or future product
candidates;
●
failures
or delays in the commencement or completion of our planned clinical
trials could delay, prevent or limit our ability to generate
revenue and continue our business;
●
we
face significant competition, and if we are unable to compete
effectively, we may not be able to achieve or maintain significant
market penetration or improve our results of
operations;
●
if
we are unable to adequately protect our proprietary technology, or
obtain and maintain issued patents that are sufficient to protect
our product candidates, others could compete against us more
directly, which would have a material adverse impact on our
business, results of operations, financial condition and
prospects;
●
we
have incurred significant net losses since inception and we will
continue to incur substantial operating losses for the foreseeable
future;
●
we
have identified material weaknesses in our internal control over
financial reporting, and our business and stock price may be
adversely affected if we do not adequately address those weaknesses
or if we have other material weaknesses or significant deficiencies
in our internal control over financial reporting;
●
we
require additional financing to execute our business plan and
continue to operate as a going concern;
●
raising
additional capital will cause substantial dilution to our existing
stockholders, may restrict our operations or require us to
relinquish rights, and may require us to seek stockholder approval
to authorize additional shares of our common stock;
●
if
we fail to comply with the continued listing requirements of the
Nasdaq Capital Market, our common stock may be delisted and the
price of our common stock and our ability to access the capital
markets could be negatively impacted; and
●
other risks and uncertainties, including those
described under “
Risk
Factors
”
below.
If we are unable to effectively manage the impact of these and
other risks, our ability to operate and execute our business plan
would be substantially impaired. In turn, the value of our
securities would be materially reduced.
Risk Factors
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 our fiscal
year ended March 31, 2020 before investing in our securities. The
risks described below are not the only risks facing our
Company. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial
may also materially adversely affect our business, financial
condition and/or operating results. If any of the following
risks are realized, our business, financial condition and
results of operations could be materially and adversely
affected.
The COVID-19 pandemic has had, and continues to have, an impact on
our business, and may have several adverse effects on our
business.
In early 2020, a new strain of coronavirus (
COVID-19
) has spread to many countries in the world and
the outbreak has been declared a pandemic by the World Health
Organization. The U.S. Secretary of Health and Human Services has
also declared a public health emergency in the U.S. in response to
the outbreak. Considerable uncertainty still surrounds
the COVID-19 virus and its potential effects, and the extent
of and effectiveness of responses taken on international, national
and local levels. Measures taken to limit the impact
of COVID-19, including periodic shelter-in-place orders,
social distancing measures, travel bans, precautions and
restrictions, and periodic business and government shutdowns have
already resulted in significant negative economic impacts on a
global basis.
As the COVID-19 pandemic continues to evolve, we cannot
at this time accurately predict the potentially diverse effects and
impact of these conditions on our ongoing and planned operations,
as well as those of our collaborators involved in the production
and development of our product candidates. Uncertainties remain as
to the ultimate geographic spread of the virus, the severity of the
disease, the duration of the pandemic, and the length and scope of
the travel restrictions and periodic business closures imposed by
the governments of impacted countries. The continuing impact of the
COVID-19 pandemic, or another infectious disease outbreak with
similar characteristics, may lead to the implementation of further
responses, including additional travel restrictions,
government-imposed quarantines or stay-at-home orders, and other
public health safety measures, which may result in further
disruptions to our business and operations and those of our
collaborators involved in the production and development of our
product candidates. The global COVID-19 pandemic has had an
impact on our business, and continuation of the pandemic, or a
future outbreak unrelated but similar to the COVID-19 pandemic, may
have several adverse effects on our business, results of operations
and financial condition.
●
Delayed product development:
We have, and may continue to
face delays and other disruptions to our ongoing clinical
development programs for PH94B, PH10 and AV-101 due to the ongoing
COVID-19 pandemic. In addition, regulatory oversight and actions
regarding our products may be disrupted or delayed in regions
impacted by COVID-19, including the U.S. and elsewhere,
which may impact review and approval timelines for our product
candidates in various stages of development. Although we
remain focused on advancing our clinical development programs for
our current product candidates, our research and development
efforts may be impacted if our employees, our contract research
organizations (
CROs
), our
third-party contract development and manufacturing organizations
(
CDMOs
) or other
collaborators involved with the development of our drug candidates
have reductions in force or are advised to continue to work
remotely as part of social distancing measures or other protective
measures necessitated by the COVID-19 pandemic.
●
Negative impacts on our suppliers, manufacturers and
employees
: COVID-19 or similar infectious diseases has
impacted and may in the future impact the health of our employees,
as well as our collaborators, including but not limited to our
contractors, suppliers, CROs or CDMOs, or reduce the availability
of our workforce or the workforce of one or more of the companies
with which we do business, divert our attention toward succession
planning, or create disruptions in our supply or distribution
networks. From time to time since the beginning of the COVID-19
pandemic, we have experienced delays of the delivery of supplies of
active pharmaceutical ingredient (
API
or
drug substance
) and formulated drug
product required to advance development of PH94B and PH10. Although
our supply of raw materials and API remains sufficiently
operational, we may experience adverse effects of such events in
the future, which may result in a significant, material delay of or
disruption to our clinical development programs, and our
operations. Additionally, having shifted to remote working
arrangements, we also face a heightened risk of cybersecurity
attacks or data security incidents and are more dependent on
internet and telecommunications access and
capabilities.
The ongoing COVID-19 pandemic has also created significant
disruption to and volatility in national, regional and local
economies and markets. Uncertainties related to, and perceived or
experienced negative effects from, COVID-19 may cause
significant volatility or decline in the trading price of our
securities, capital market conditions and general economic
environment. Our future results of operations and liquidity could
be adversely impacted by supply chain disruptions and
operational challenges faced by our CROs, CDMOs and other
contractors. Continued outbreaks of COVID-19 or a significant
outbreak of contagious diseases in the human population could
result in a widespread health crisis that could adversely affect
the economies and financial markets of many countries, resulting in
a further economic downturn or a global recession. Such events may
limit or restrict our ability to access capital on favorable terms,
or at all, lead to consolidation that negatively impacts our
business, weaken demand, increase competition, cause us to reduce
our capital spend further, or otherwise disrupt our business or
make it more difficult to implement our strategic
plans.
Risks Related to Product Development, Regulatory Approval and
Commercialization
We depend heavily on the success of one or more of our current drug
candidates and we cannot be certain that we will be able to obtain
regulatory approval for, or successfully commercialize any of our
product candidates.
We currently have no drug products for sale and may never be able
to develop and commercialize marketable drug products. Our business
currently depends heavily on the successful development,
manufacturing, regulatory approval and commercialization of one or
more of our current CNS drug candidates, as well as, but to a more
limited extent, our ability to acquire, license or produce, develop
and commercialize additional product candidates. Each of our
current CNS drug candidates will require substantial additional
nonclinical and clinical development, manufacturing and regulatory
approval before any of them may be commercialized, and there can be
no assurance that any of them will ever achieve regulatory
approval. Any new chemical entity (
NCE
) we may produce through drug rescue activities
will require substantial nonclinical development, all phases of
clinical development, manufacturing and regulatory approval before
it may be commercialized. The nonclinical and clinical development
of our product candidates are, and the manufacturing and marketing
of our product candidates will be, subject to extensive and
rigorous review and regulation by numerous government authorities
in the U.S. and in other countries where we 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 New Drug Application
(
NDA
) from the FDA, or in any foreign countries until
we receive the requisite approval from such countries. Obtaining
FDA approval of a NDA is a complex, lengthy, expensive and
uncertain process. The FDA may refuse to permit the filing of our
NDA, delay, limit or deny approval of a NDA for many reasons,
including, among others:
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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;
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a FDA advisory committee may recommend, or the FDA may require, a
Risk Evaluation and Mitigation Strategies (
REMS
) safety program as a condition of approval or
post-approval;
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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;
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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
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the FDA or applicable foreign regulatory agency may change its
approval policies or adopt new regulations.
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Any of these factors, many of which are beyond our control, could
jeopardize our ability to obtain regulatory approval for and
successfully commercialize any current or future drug product
candidate we may develop. Any such setback in our pursuit of
regulatory approval for any product candidate would have a material
adverse effect on our business and prospects.
In addition, we anticipate that certain of our product candidates,
including PH94B and PH10, will be subject to regulation as
combination products, which means that they are composed of both a
drug product and device product. Although we do not contemplate
doing so, if marketed individually, each component would be subject
to different regulatory pathways and reviewed by different centers
within the FDA. Our product candidates that are considered to be
drug-device combination products will require review and
coordination by FDA’s drug and device centers prior to
approval, which may delay approval. In the U.S.,
a combination product with a drug
primary mode of action generally would be reviewed and approved
pursuant to the drug approval processes under the Federal Food,
Drug and Cosmetic Act of 1938. In reviewing the NDA application for
such a product, however, FDA reviewers in the drug center could
consult with their counterparts in the device center to ensure that
the device component of the combination product met applicable
requirements regarding safety, effectiveness, durability and
performance.
Under FDA
regulations, combination products are subject to cGMP requirements
applicable to both drugs and devices, including the Quality System
(
QS
) regulations applicable to medical devices.
Problems associated with the device component of the combination
product candidate may delay or prevent
approval.
We have been granted Fast Track designation from the FDA for
development of PH94B for the treatment of
social anxiety disorder (SAD) and AV-101 for the adjunctive
treatment of major depressive disorder (MDD) and for the treatment
of neuropathic pain (NP). However, these designations may not
actually lead to faster development or regulatory review or
approval processes for PH94B or AV-101. Further, there is no
guarantee the FDA will grant Fast Track designation for PH94B or
AV-101 as a treatment option for other CNS indications or for any
of our other product candidates in the future.
The Fast Track designation is a program offered by the FDA,
pursuant to certain mandates under the FDA Modernization Act of
1997, designed to facilitate drug development and to expedite the
review of new drugs that are intended to treat serious or
life-threatening conditions. Compounds selected must demonstrate
the potential to address unmet medical needs. The FDA’s Fast
Track designation allows for close and frequent interaction with
the FDA. A designated Fast Track drug may also be considered for
priority review with a shortened review time, rolling submission,
and accelerated approval if applicable. The designation does not,
however, guarantee FDA approval or expedited approval of any
application for the product candidate.
In December 2017, the FDA granted Fast Track designation for
development of AV-101 for the adjunctive (add-on) treatment of MDD
in patients with an inadequate response to current antidepressants.
In September 2018, the FDA granted Fast Track designation for
development of AV-101 for the treatment of NP. In December 2019,
the FDA granted Fast Track designation for development of PH94B for
the treatment of SAD. However, these FDA Fast Track designations
may not lead to a faster development or regulatory review or
approval process for PH94B or AV-101 and the FDA may withdraw Fast
Track designation of PH94B or AV-101 if it believes that the
respective designation is no longer supported by data from our
clinical development programs.
In addition, we may apply for Fast Track designation for PH94B,
PH10 and AV-101 as a treatment option for other CNS indications,.
The FDA has broad discretion whether or not to grant a Fast Track
designation, and even if we believe PH94B, PH10, AV-101 or other
product candidates may be eligible for this designation, we cannot
be sure that the FDA will grant it.
Results of earlier clinical trials may not be predictive of the
results of later-stage clinical trials.
The results of preclinical studies and early clinical trials of
PH94B, PH10, AV-101 and/or our other future product candidates, if
any, including positive results, may not be predictive of the
results of later-stage clinical trials. PH94B, PH10, AV-101 or any
other future product candidates in later stages of clinical
development may fail to show the desired safety and efficacy
results despite having progressed through nonclinical studies and
initial clinical trials. Many companies in the biopharmaceutical
industry have suffered significant setbacks in later-stage clinical
trials due to adverse safety profiles or lack of efficacy,
notwithstanding promising results in earlier studies. Similarly,
our future clinical trial results may not be successful for these
or other reasons.
Moreover, nonclinical and clinical data are often susceptible to
varying interpretations and analyses, and many companies that
believed their product candidates performed satisfactorily in
nonclinical studies and clinical trials nonetheless failed to
obtain FDA approval or approval from a similar regulatory authority
in another country. With respect to our current product candidates,
if one or more of the future Phase 3 clinical trials of PH94B for
acute treatment of anxiety in adults with SAD, any future clinical
study of AV-101 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 PH94B, PH10
or AV-101 and, correspondingly, our business and financial
prospects, could be materially adversely affected.
This drug candidate development risk is heightened by any changes
in planned timing or nature of clinical trials compared to
completed clinical trials. As product candidates are developed
through preclinical to early- and late-stage clinical trials
towards regulatory approval and commercialization, it is customary
that various aspects of the development program, such as
manufacturing and methods of administration, are altered along the
way in an effort to optimize processes and results. While these
types of changes are common and are intended to optimize the
product candidates for later stage clinical trials, approval and
commercialization, such changes do carry the risk that they will
not achieve these intended objectives.
For example, the results of planned clinical trials have been
affected by supply chain disruptions experienced by certain of our
CDMOs as a result of the ongoing COVID-19 pandemic. In addition,
clinical development of our products may be further affected if we
or any of our collaborators seek to optimize and scale-up
production of a product candidate. In such case, we will need to
demonstrate comparability between the newly manufactured drug
substance and/or drug product relative to the previously
manufactured drug substance and/or drug product. Demonstrating
comparability may cause us to incur additional costs or delay
initiation or completion of our clinical trials, including the need
to initiate a dose escalation study and, if unsuccessful, could
require us to complete additional nonclinical or clinical studies
of our product candidates. In addition, health and safety
precautions at clinical sites related to the COVID-19 pandemic
could cause us to incur additional costs or delay initiation or
completion of planned nonclinical and clinical trials.
If serious adverse events or other undesirable side effects or
safety concerns attributable to our product candidates occur, they
may adversely affect or delay our clinical development and
commercialization of PH94B, PH10 or AV-101.
Undesirable side effects or safety concerns caused by our product
candidates could cause us or regulatory authorities to interrupt,
delay or halt our clinical trials and could result in a more
restrictive label or the delay or denial of regulatory
approval. Although no treatment-related serious adverse events
(
SAEs
) were observed in any clinical trials of any of
our product candidates to date, if treatment-related SAEs or other
undesirable side effects or safety concerns, or unexpected
characteristics attributable to PH94B, PH10 and/or AV-101, are
observed in any future clinical trials, including
investigator-sponsored clinical trials, they may adversely affect
or delay our clinical development and commercialization of the
effected product candidate, and the occurrence of these events
could have a material adverse effect on our business and financial
prospects. Results of our future clinical trials could reveal a
high and unacceptable severity and prevalence of adverse side
effects. In such an event, our trials could be suspended or
terminated and the FDA or other regulatory agency could order us to
cease further development of or deny approval of our product
candidates for any or all targeted indications. The drug-related
side effects could affect patient recruitment or the ability of
enrolled patients to complete the trial or result in potential
product liability claims.
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;
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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;
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we
may be required to conduct additional post-marketing studies or
surveillance;
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we
may be subject to limitations on how we may promote the
product;
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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 PH94B, PH10, AV-101 or
other our product candidates could result in increased costs to us
and could delay, prevent or limit our ability to generate revenue
and continue our business.
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 acute treatment of anxiety
in adults with SAD, or for any other anxiety disorder or phobia.
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 a
stand-alone rapid-onset treatment for MDD, or any other depression
disorder. For AV-101 in combination with probenecid, for treatment
of any CNS indication, we will need to complete at least one Phase
1B clinical study, two Phase 2 clinical studies, two pivotal Phase
3 clinical trials, additional toxicology and other standard
nonclinical and clinical safety studies, as well as certain
standard smaller clinical studies prior to the submission of an NDA
for regulatory approval. Successful completion of our nonclinical
and clinical trials is a prerequisite to submitting an NDA and,
consequently, the ultimate approval required before commercial
marketing of any product candidate we may develop. We do not know
whether any of our future-planned nonclinical and clinical trials
of PH94B, PH10, AV-101 or any other product candidate will be
completed on schedule, if at all, as the commencement and
completion of nonclinical and clinical trials can be delayed or
prevented for a number of reasons, including, among
others:
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delays due to events resulting from the ongoing COVID-19
pandemic;
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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;
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delays in filing or receiving approvals from regulatory authorities
of additional INDs that may be required;
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negative or ambiguous results from nonclinical or clinical
studies;
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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;
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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;
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inability to manufacture or obtain clinical supplies of a product
candidate meeting required quality standards;
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difficulties obtaining Institutional Review Board
(
IRB
) approval to conduct a clinical trial at a
prospective clinical site or sites;
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challenges in recruiting and enrolling patients to participate in
clinical trials, including the proximity of patients to clinical
trial sites;
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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;
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severe or unexpected adverse drug-related side effects experienced
by patients in a clinical trial;
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delays in validating any endpoints utilized in a clinical
trial;
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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;
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reports from nonclinical or clinical testing of other CNS
indications or therapies that raise safety or efficacy concerns;
and
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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.
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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:
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failure to conduct the clinical trial in accordance with regulatory
requirements or approved clinical protocols;
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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;
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unforeseen safety issues, including any that could be identified in
nonclinical carcinogenicity studies, adverse side effects or lack
of effectiveness;
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changes in government regulations or administrative
actions;
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problems with clinical supply materials that may lead to regulatory
actions; and
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lack of adequate funding to continue nonclinical or clinical
studies.
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Changes in regulatory requirements, regulatory guidance or
unanticipated events during our nonclinical studies and clinical
trials of PH94B, PH10, AV-101 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 PH94B,
PH10, AV-101 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 PH94B, PH10, AV-101
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
PH94B, PH10, AV-101 or other future product candidates may be
delayed and we may not be able to obtain regulatory approval for or
commercialize PH94B, PH10, AV-101 or other future product
candidates and our business could be substantially
harmed.
By strategic design, we do not have the extensive internal staff
resources to independently conduct nonclinical and clinical trials
of our product candidates completely on our own. We rely on our
network of strategic relationships with various academic research
centers, medical institutions, nonclinical and clinical
investigators, contract laboratories, CROs and other third parties
to assist us to conduct and complete nonclinical and clinical
trials of our product candidates. We enter into agreements with
third-party CROs to provide monitors for and to manage data for our
clinical trials, as well as provide other services necessary to
prepare for, conduct and complete clinical trials. We rely heavily
on these and other third-parties for execution of nonclinical and
clinical trials for our product candidates and we control only
certain aspects of their activities. As a result, we have less
direct control over the conduct, timing and completion of these
nonclinical and clinical trials and the management of data
developed through nonclinical and clinical trials than would be the
case if we were relying entirely upon our own internal staff
resources. Communicating with outside parties can also be
challenging, potentially leading to mistakes as well as
difficulties in coordinating activities. CROs and other outside
parties may:
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experience disruptions to their operations, such as reduced
staffing and supply chain disruptions, as a result of the ongoing
COVID-19 pandemic;
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have staffing difficulties and/or undertake obligations beyond
their anticipated capabilities and resources;
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fail to comply with contractual obligations;
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experience regulatory compliance issues;
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undergo changes in priorities or become financially distressed;
or
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form relationships with other entities, some of which may be our
competitors.
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These factors may materially adversely affect the willingness or
ability of third parties to conduct our nonclinical and clinical
trials and may subject us to unexpected cost increases that are
beyond our control. Nevertheless, we are responsible for ensuring
that each of our nonclinical studies and clinical trials is
conducted and completed in accordance with the applicable protocol,
legal, regulatory and scientific requirements and standards, and
our reliance on CROs, or independent investigators does not relieve
us of our regulatory responsibilities. We and our CROs, and any
investigator in an investigator-sponsored study are required to
comply with regulations and guidelines, including current Good
Clinical Practice regulations (
cGCPs
) for conducting, monitoring, recording and
reporting the results of clinical trials to ensure that the data
and results are scientifically credible and accurate, and that the
trial patients are adequately informed of the potential risks of
participating in clinical trials. These regulations are enforced by
the FDA, the Competent Authorities of the Member States of the
European Economic Area and comparable foreign regulatory
authorities for any products in clinical development. The FDA
enforces cGCP regulations through periodic inspections of clinical
trial sponsors, principal investigators and trial sites. If we, any
of our CROs or any of our third-party collaborators fail to comply
with applicable cGCPs, the clinical data generated in clinical
trials involving our product candidates may be deemed unreliable
and the FDA or comparable foreign regulatory authorities may
require us to perform additional clinical trials before approving
our marketing applications. We cannot assure you that, upon
inspection, the FDA will determine that any of our clinical trials
comply with cGCPs. In addition, our clinical trials must be
conducted with product candidates produced under cGMPs and will
require a large number of test patients. Our failure or the failure
of our CROs or other third-party collaborators to comply with these
regulations may require us to repeat clinical trials, which would
delay the regulatory approval process and could also subject us to
enforcement action up to and including civil and criminal
penalties.
Although we design our clinical trials for our product candidates,
our clinical development strategy involves having CROs and other
third-party investigators and medical institutions conduct clinical
trials of our product candidates. As a result, many important
aspects of our drug development programs are outside of our direct
control. In addition, although CROs, or independent investigators
or medical institutions, as the case may be, may not perform all of
their obligations under arrangements with us or in compliance with
applicable regulatory requirements, under certain circumstances, we
may be responsible and subject to enforcement action that may
include civil penalties up to and including criminal prosecution
for any violations of FDA laws and regulations during the conduct
of clinical trials of our product candidates. If such third parties
do not perform clinical trials of our product candidates in a
satisfactory manner, breach their obligations to us or fail to
comply with applicable regulatory requirements, the development and
commercialization of our product candidates may be delayed or our
development program materially and irreversibly harmed. In certain
cases, including the Baylor Study and other investigator-sponsored
clinical studies, we cannot control the amount and timing of
resources these third-parties devote to clinical trials involving
our product candidates. If we are unable to rely on nonclinical and
clinical data collected by our third-party collaborators, we could
be required to repeat, extend the duration of, or increase the size
of our clinical trials and this could significantly delay
commercialization and require significantly greater
expenditures.
If our relationships with one or more of our third-party
collaborators terminates, we may not be able to enter into
arrangements with alternative third-party
collaborators. If such third-party collaborators,
including our CROs, do not successfully carry out their contractual
duties or obligations or meet expected deadlines, if they need to
be replaced or if the quality or accuracy of the clinical data they
obtain is compromised due to their failure to adhere to applicable
clinical protocols, regulatory requirements or for other reasons,
any clinical trials that such third-parties are associated with may
be extended, delayed or terminated, and we may not be able to
obtain regulatory approval for or successfully develop and
commercialize our product candidates. As a result, we believe that
our financial results and the commercial prospects for our product
candidates in the subject indication would be harmed, our costs
would increase and our ability to generate revenue would be
delayed.
We rely completely on third-parties to manufacture, formulate,
analyze, 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, extensive internal infrastructure or technical
capabilities to manufacture, formulate, analyze, hold or distribute
supplies of our product candidates, for use in nonclinical and
clinical studies or commercial scale. As a result, with
respect to all of our product candidates, we rely, and will
continue to rely, completely on CDMOs to manufacture API and
formulate, hold and distribute final drug product. The facilities
used by our CDMOs to manufacture PH94B, PH10 and AV-101 API and
formulate PH94B, PH10 and AV-101 final drug product are subject to
a pre-approval inspection by the FDA and other comparable foreign
regulatory agencies to assess compliance with applicable regulatory
guidelines and requirements, including cGMPs, and may be required
to undergo similar inspections by the FDA or other comparable
foreign regulatory agencies, after we submit INDs, NDAs or relevant
foreign regulatory submission equivalent to the applicable
regulatory agency.
We do not directly control the manufacturing process or the supply
or quality of materials used in the manufacturing, analysis and
formulation of our product candidates, and, with respect to all of
our product candidates, we are completely dependent on our CDMOs to
comply with all applicable cGMPs for the manufacturing of both API
and finished drug product. If our CDMOs cannot secure adequate
supplies of suitable raw materials or successfully manufacture our
product candidates, including PH94B, PH10 and AV-101 API and
finished drug product, that conforms to our specifications and the
strict regulatory requirements of the FDA or applicable foreign
regulatory agencies, production of sufficient supplies of our
product candidates, including PH94B, PH10 and AV-101 API and
finished drug product, may be delayed and our CDMOs 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 CDMOs’ ability to maintain
adequate quality control, quality assurance and qualified
personnel. All of our CDMOs are engaged with other companies to
supply and/or manufacture materials or products for such other
companies, which exposes our CDMOs 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
CDMO’s facilities generally or affect the timing of
manufacture of PH94B, PH10 and AV-101 for required or planned
nonclinical and/or clinical studies. If the FDA or an applicable
foreign regulatory agency determines now or in the future that our
CDMOs’ 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 CDMOs also exposes us to
the possibility that they, or third parties with access to their
facilities, will have access to and may appropriate our trade
secrets or other proprietary information.
With respect to PH94B, PH10 and AV-101, we do not yet have
long-term supply agreements in place with our CDMOs and each batch
of PH94B, PH10 and AV-101 is or will be individually contracted
under a separate supply agreement. If we engage new CDMOs, such
contractors must complete an inspection by the FDA and other
applicable foreign regulatory agencies. We plan to continue to rely
upon CDMOs and, potentially, collaboration partners, to manufacture
research and development scale, and, if approved, commercial
quantities of our product candidates. Although we believe our
current scale of API manufacturing for AV-101, and our contemplated
scale of API manufacturing for PH94B and PH10, and the current and
projected supply of PH94B, PH10 and AV-101 API and finished drug
product will be adequate to support our planned nonclinical and
clinical studies of PH94B, PH10 and AV-101, no assurance can be
given that unanticipated supply shortages or CDMO-related delays in
the manufacture and formulation of PH94B, PH10 or AV-101 API and/or
finished drug product will not occur in the future.
Additionally, we anticipate that PH94B and PH10 will be considered
drug-device combination products. Third-party manufacturers may not
be able to comply with cGMP requirements applicable to drug/device
combination products, including applicable provisions of the
FDA’s or a comparable foreign regulatory authority’s
drug cGMP regulations, device cGMP requirements embodied in the
Quality System Regulation (
QSR
) or similar regulatory requirements outside the
U.S. Our failure, or the failure of our third-party manufacturers,
to comply with applicable regulations could result in sanctions
being imposed on us, including clinical holds, fines, injunctions,
civil penalties, delays, suspension or withdrawal of approvals,
license revocation, seizures or recalls of product candidates,
operating restrictions and criminal prosecutions, any of which
could significantly affect supplies of our product candidates. The
facilities used by our CDMOs 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 CDMO partners for
compliance with cGMPs and QSRs. If our CDMOs 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. CDMOs 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 PH94B, PH10, AV-101 or
any other product candidate in the U.S., we may never receive
regulatory approval to market PH94B, PH10, AV-101 or any other
product candidate outside of the U.S.
In order to market PH94B, PH10, AV-101 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 CDMOs, as well as future
distributors, prescribers, and dispensers will be required to
comply with additional regulatory requirements which could delay
the marketing of our product candidates, and increase the cost and
burden of manufacturing, distributing, dispensing, and prescribing
our product candidates.
Before we can commercialize our product candidates in the U.S. or
any market outside the U.S., the U.S. Drug Enforcement
Administration (
DEA
) or its foreign counterpart may need to determine
whether such product candidates will be considered to be a
controlled substance, taking into account the recommendation of the
FDA or its foreign counterpart, as the case may be. This may be
a lengthy process that could delay our marketing of a product
candidate and could potentially diminish any regulatory exclusivity
periods for which we may be eligible, which would increase the cost
associated with commercializing such products and, in turn, may
have an adverse impact on our results of operations. Although we
currently do not know whether the DEA or any foreign counterpart
will consider any of our current or future product candidate to be
controlled substances, we cannot yet give any assurance that such
product candidates, including PH94B, PH10 and AV-101 will not be
regulated as controlled substances.
If any of our product candidates are regulated as controlled
substances, depending on the DEA controlled substance schedule in
which the product candidates are placed or that of its foreign
counterpart, we, our CDMOs, 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 CDMOs
would be subject to initial and periodic DEA inspection. If we or
our CDMOs 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 CDMOs,
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 on
our own 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 establish internal
capabilities related to sales, marketing, managerial and other
non-technical capabilities relating to the commercialization of our
product candidates, or make contractual arrangements with third
parties to perform services, prior to market approval. If we are
unable to establish adequate such sales, marketing and distribution
capabilities on our own, or if we are unable to do so contractually
on commercially reasonable terms, our business, results of
operations, financial condition and prospects will be materially
adversely affected.
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 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:
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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;
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limitations or warnings contained in the labeling approved for our
product candidates by the FDA or other applicable regulatory
authorities;
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the clinical indications for which our product candidates are
approved;
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availability of alternative treatments already approved or expected
to be commercially launched in the near future;
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the potential and perceived advantages of our product candidates
over current treatment options or alternative treatments, including
future alternative treatments;
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the willingness of the target patient population to try new
therapies and of physicians to prescribe these
therapies;
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the strength of marketing and distribution support and timing of
market introduction of competitive products;
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publicity concerning our products or competing products and
treatments;
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pricing and cost effectiveness;
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the effectiveness of our sales and marketing
strategies;
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our ability to increase awareness of our product candidates through
marketing efforts;
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our ability to obtain sufficient third-party coverage or
reimbursement; or
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the willingness of patients to pay out-of-pocket in the absence of
third-party coverage.
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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.
If our product candidates are determined to cause undesirable side
effects and safety concerns we or regulatory authorities may
interrupt, delay or halt nonclinical studies and clinical trials
and could result in a more restrictive label or the delay or denial
of regulatory approval by regulatory authorities.
Further, clinical trials by their nature utilize a sample of
potential patient populations. With a limited number of patients
and limited duration of exposure, rare and severe side effects of
our product candidates may only be uncovered with a significantly
larger number of patients exposed to the product candidate. If our
product candidates receive marketing approval and we or others
identify undesirable safety concerns or side effects caused by such
product candidates (or any other similar products) after such
approval, a number of potentially significant negative consequences
could result, including:
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regulatory authorities may withdraw or limit their approval of such
product candidates;
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regulatory authorities may require the addition of labeling
statements, such as a “black box” warning or a
contraindication;
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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;
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we may be subject to regulatory investigations and government
enforcement actions;
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we may decide to remove such product candidates from the
marketplace;
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we could be sued and held liable for injury caused to individuals
exposed to or taking our product candidates; and
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our reputation may suffer.
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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:
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issue warning letters or untitled letters;
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seek an injunction or impose civil or criminal penalties or
monetary fines;
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suspend or withdraw marketing approval;
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suspend any ongoing clinical trials;
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refuse to approve pending applications or supplements to
applications submitted by us;
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suspend or impose restrictions on operations, including costly new
manufacturing requirements; or
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seize or detain products, refuse to permit the import or export of
products, or require that we initiate a product
recall.
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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 in the
future.
Currently, management is unaware of any FDA-approved rapid-onset,
acute treatment of anxiety in adults with SAD having the same
mechanism of pharmacological action and safety profile as our
PH94B. Also, management is currently unaware of any FDA-approved
oral treatment for MDD having the same mechanism of pharmacological
action and safety profile as our intranasally-administered PH10 or
our orally-administered AV-101 in combination with probenecid.
However, new antidepressant products with other mechanisms of
pharmacological action or products approved for other indications,
including the FDA-approved anesthetic ketamine hydrochloride
administered intravenously, are being or may be used for treatment
of MDD, as well as other CNS indications for which PH10 or AV-101
in combination with probenecid may have therapeutic potential.
Additionally, other non-pharmaceutical treatment options, such
psychotherapy and electroconvulsive therapy (
ECT
) are used before or instead of standard
antidepressant medications to treat patients with
MDD.
With respect to PH94B and current treatment options for SAD in the
U.S., our competition may include, but is not limited to, current
generic oral antidepressants approved by the FDA for treatment of
SAD, as well as certain classes of drugs prescribed on an off-label
basis for treatment of SAD, including benzodiazepines such as
alprazolam, and beta blockers such as propranolol. In the field of
new generation, oral treatments for adult patients with MDD, we
believe our principal competitors may be Axsome, Alkermes, Relmada
and Sage. Additional potential competitors may include, but not be
limited to, academic and private commercial clinics providing
intravenous ketamine therapy on an off-label basis and
Janssen’s intranasally-administered esketamine.
Many of our potential competitors, alone or with their strategic
partners, have substantially greater financial, technical and human
resources than we do and significantly greater experience in the
discovery, and development of product candidates, obtaining FDA and
other regulatory approvals of treatments and the commercialization
of those treatments. With respect to PH94B, in addition
to potential competition from certain current FDA-approved
antidepressants and off-label use of benzodiazepines and beta
blockers, we believe additional drug candidates in development for
SAD may include, but potentially not be limited to, an oral fatty
acid amide hydrolase inhibitor in development by Janssen. With
respect to PH10 and AV-101 in combination with probenecid for
treatment of depression disorders, including MDD, and AV-101 in
combination with probenecid for treatment of certain neurological
disorders, including levodopa-induced dyskinesia associated with
therapy for Parkinson’s disease, neuropathic pain, and
epilepsy, we believe a range of pharmaceutical and biotechnology
companies have programs to develop drug candidates for such
indications, including, but not limited to, Abbott Laboratories,
Acadia, Allergan, Alkermes, Aptynix, AstraZeneca, Axsome, Eli
Lilly, GlaxoSmithKline, IntraCellular, Janssen, Lundbeck, Merck,
Neurocrine, Novartis, Ono, Otsuka, Pfizer, Relmada, Roche, Sage,
Sumitomo Dainippon, and Takeda, as well as any affiliates of the
foregoing companies. Mergers and acquisitions in the
biotechnology and pharmaceutical industries may result in even more
resources being concentrated among a smaller number of our
competitors. Our commercial opportunity could be reduced or
eliminated if our competitors develop and commercialize products
that are safer, more effective, have fewer or less severe side
effects, are more convenient or are less expensive than any
products that we may develop. Our competitors also may obtain FDA
or other regulatory approval for their products more rapidly than
we may obtain approval for ours, which could result in our
competitors establishing a strong market position before we are
able to enter the market.
We may seek to establish collaborations, and, if we are not able to
establish them on commercially reasonable terms, we may have to
alter our development and commercialization plans.
Our drug development programs and the potential commercialization
of our product candidates will require substantial additional cash
to fund expenses. For some of our product candidates, we may decide
to collaborate with pharmaceutical and biotechnology companies for
the development and potential commercialization of those product
candidates, such as the License and Collaboration Agreement we
entered into with EverInsight Therapeutics, Inc. in June 2020 for
the development and commercialization of PH94B in several key Asian
markets.
We may derive revenue from research and development fees, license
fees, milestone payments and royalties under any collaborative
arrangement into which we enter, including the EverInsight
Agreement and/or the Bayer Agreement. However, our ability to
generate revenue from these arrangements will depend on our
collaborators’ abilities to successfully perform the
functions assigned to them in these arrangements. In addition, our
collaborators have the right to abandon research or development
projects and terminate applicable agreements, including funding
obligations, prior to or upon the expiration of the agreed upon
terms. As a result, we can expect to relinquish some or all of the
control over the future success of a product candidate that we
license to a third party in the territories included in the
licenses.
We face significant competition in seeking appropriate
collaborators. Whether we reach additional definitive agreements
for collaborations will depend, among other things, upon our
assessment of the collaborator’s resources and expertise, the
terms and conditions of the proposed collaboration and the proposed
collaborator’s evaluation of a number of factors. Those
factors may include the design or results of nonclinical and
clinical trials, the likelihood of approval by the FDA or similar
regulatory authorities outside the United States, the potential
markets for the subject product candidate, the costs and
complexities of manufacturing and delivering such product candidate
to patients, the potential of competing products, the existence of
uncertainty with respect to our ownership of technology, which can
exist if there is a challenge to such ownership without regard to
the merits of the challenge and industry and market conditions
generally. The collaborator may also consider alternative product
candidates or technologies for similar indications that may be
available to collaborate on and whether such collaboration could be
more attractive than the one with us for our product candidate. The
terms of any collaboration or other arrangements that we may
establish may not be favorable to us.
We may also be restricted under existing collaboration agreements
from entering into future agreements on certain terms with
potential collaborators. Collaborations are complex and
time-consuming to negotiate and document. In addition, there have
been a significant number of recent business combinations among
large pharmaceutical companies that have resulted in a reduced
number of potential future collaborators.
We may not be able to negotiate additional collaborations on a
timely basis, on acceptable terms, or at all. If we are unable to
do so, we may have to curtail the development of the product
candidate for which we are seeking to collaborate, reduce or delay
its development program or one or more of our other development
programs, delay its potential commercialization or reduce the scope
of any sales or marketing activities, or increase our expenditures
and undertake development or commercialization activities at our
own expense. If we elect to increase our expenditures to fund
development or commercialization activities on our own, we may need
to obtain additional capital, which may not be available to us on
acceptable terms or at all. If we do not have sufficient funds, we
may not be able to further develop our product candidates or bring
them to market and generate product revenue.
In addition, any future collaboration that we enter into may not be
successful. The success of our collaboration arrangements will
depend heavily on the efforts and activities of our collaborators.
Collaborators generally have significant discretion in determining
the efforts and resources that they will apply to these
collaborations. Disagreements between parties to a collaboration
arrangement regarding clinical development and commercialization
matters can lead to delays in the development process or
commercializing the applicable product candidate and, in some
cases, termination of the collaboration arrangement. These
disagreements can be difficult to resolve if neither of the parties
has final decision-making authority. Collaborations with
pharmaceutical or biotechnology companies and other third parties
often are terminated or allowed to expire by the other party. Any
such termination or expiration would adversely affect us
financially and could harm our business reputation.
We may not be successful in our efforts to identify or discover
additional 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. We may fail to pursue
additional development opportunities for PH94B, PH10 or AV-101, or
identify additional product candidates for clinical development and
commercialization for a number of reasons. Our research methodology
may be unsuccessful in identifying new product candidates or our
product candidates may be shown to have harmful side effects or may
have other characteristics that may make the products unmarketable
or unlikely to receive marketing approval.
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 PH94B, PH10 and AV-101, with
additional limited focus on NCE drug rescue and, through a
third-party collaboration with Bayer AG, regenerative medicine. As
a result, we may forego or delay pursuit of opportunities with
other product candidates or for other potential CNS-related
indications for PH94B, PH10 and/or AV-101 that later prove to have
greater commercial potential. Our resource allocation decisions may
cause us to fail to capitalize on viable commercial drugs or
profitable market opportunities. Our spending on current and future
research and development programs and product candidates for
specific indications may not yield any commercially viable drugs.
If we do not accurately evaluate the commercial potential or target
market for a particular product candidate, we may relinquish
valuable rights to that product candidate through future
collaboration, licensing or other royalty arrangements in cases in
which it would have been more advantageous for us to retain sole
development and commercialization rights to such product
candidate.
If any of these events occur, we may be forced to abandon our
development efforts for a program or programs, which would have a
material adverse effect on our business and could potentially cause
us to cease operations. Research and development programs to
identify and advance new product candidates require substantial
technical, financial and human resources. We may focus our efforts
and resources on potential programs or product candidates that
ultimately prove to be unsuccessful.
We are subject to healthcare laws and regulations, which could
expose us to criminal sanctions, civil penalties, contractual
damages, reputational harm and diminished profits and future
earnings.
Although we do not currently have any products on the market, once
we begin commercializing our 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:
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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Foreign
Corrupt Practices Act and its application to marketing and selling
practices as well as to clinical trials.
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Ensuring that our future business arrangements with third parties
comply with applicable healthcare laws and regulations could be
costly. It is possible that governmental authorities will conclude
that our business practices do not comply with current or future
statutes, regulations or case law involving applicable fraud and
abuse or other healthcare laws and regulations. If our operations
were found to be in violation of any of these laws or any other
governmental regulations that may apply to us, we may be subject to
significant civil, criminal and administrative penalties, damages,
fines and exclusion from government funded healthcare programs,
such as Medicare and Medicaid, any of which could substantially
disrupt our operations. If any of the physicians or other providers
or entities with whom we expect to do business are found to be out
of compliance with applicable laws, they may be subject to
criminal, civil or administrative sanctions, including exclusions
from government funded healthcare programs.
The FDA and other regulatory agencies actively enforce the laws and
regulations prohibiting the promotion of off-label uses. If we are
found to have improperly promoted off-label uses, we may become
subject to significant liability.
The FDA and other regulatory agencies strictly regulate the
promotional claims that may be made about prescription products,
such as PH94B, PH10 and AV-101, if approved. In particular, a
product may not be promoted for uses that are not approved by the
FDA or such other regulatory agencies as reflected in the
product’s approved labeling. For example, if we receive FDA
marketing approval for PH94B as a treatment of SAD, physicians may
prescribe PH94B to their patients in a manner that is inconsistent
with the FDA-approved label. However, if we are found to have
promoted such off-label uses, we may become subject to significant
liability. The federal government has levied large civil and
criminal fines against companies for alleged improper off-label
promotion and has enjoined several companies from engaging in
off-label promotion. The FDA has also requested that companies
enter into consent decrees or imposed permanent injunctions under
which specified promotional conduct is changed or curtailed. If we
cannot successfully manage the promotion of our product candidates,
if approved, we could become subject to significant liability,
which would materially adversely affect our business and financial
condition.
Even if approved, reimbursement policies could limit our ability to
sell our 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 such as our
collaboration with EverInsight to develop and commercialize PH94B
in key Asian markets. If we commercialize our product candidates in
foreign markets, we would be subject to additional risks and
uncertainties, including:
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our customers’ ability to obtain reimbursement for our
product candidates in foreign markets;
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our inability to directly control commercial activities because we
are relying on third parties;
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the burden of complying with complex and changing foreign
regulatory, tax, accounting and legal requirements;
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different medical practices and customs in foreign countries
affecting acceptance in the marketplace;
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import or export licensing requirements;
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longer accounts receivable collection times;
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longer lead times for shipping;
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language barriers for technical training;
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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.;
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the existence of additional potentially relevant third party
intellectual property rights;
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foreign currency exchange rate fluctuations; and
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the interpretation of contractual provisions governed by foreign
laws in the event of a contract dispute.
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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. 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:
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develop and obtain required regulatory approvals for
commercialization of PH94B, PH10, AV-101 and/or other product
candidates;
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maintain, leverage and expand our intellectual property
portfolio;
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establish and maintain sales, distribution and marketing
capabilities, and/or enter into strategic partnering arrangements
to access such capabilities;
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gain market acceptance for our product candidates; and
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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.
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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
NCEs using our stem cell technology, and we cannot provide any
assurance that we will successfully develop and commercialize
PH94B, PH10, AV-101 or acquire or license additional product
candidates or discover and develop NCEs, or that, if produced,
PH94B, PH10, AV-101 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 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 currently have any
significant pharmaceutical sales, marketing or distribution
experience. We may seek to collaborate with others to develop and
commercialize PH94B, PH10, AV-101, 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
PH94B, PH10, AV-101, 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 NCEs and no operating history with respect to the
production of NCEs, and we may never be able to produce a
NCE.
If we are unable to develop and commercialize PH94B, PH10,
AV-101 or acquire or license additional product candidates, or
produce suitable NCEs using VistaStem’s technology, 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.
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 NCEs,
independently or with partners, including:
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our ability to identify potential candidates in the public domain,
obtain sufficient quantities of them, and assess them using our
bioassay systems;
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if we seek to rescue drug 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 candidates to us on
commercially reasonable terms;
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our medicinal chemistry collaborator’s ability to design and
produce proprietary NCEs based on the novel biology and
structure-function insight we provide
using
CardioSafe
3D;
and
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financial resources available to us to develop and commercialize
lead 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 NCEs they acquire or
license from us.
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Even if we do acquire additional product candidates or produce
proprietary 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
PH94B, PH10, AV-101 or additional acquired or licensed products
candidates or any 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
CDMO, receive regulatory approval in one or more jurisdictions,
satisfy the FDA that our CDMO 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
potential NCEs, then VistaStem’s programs will be adversely
affected.
Success of our subsidiary, VistaStem, is partly dependent on its
ability to use
CardioSafe
3D to identify and predict, accurately and
efficiently, the potential toxic and nontoxic cardiac effects of
potential NCEs. If
CardioSafe
3D is not capable of providing
physiologically relevant and clinically predictive information
regarding human cardiac biology, our business may be adversely
affected.
CardioSafe
3D
may not be meaningfully more
predictive of the behavior of human cells than existing
methods.
Each potential future program undertaken by VistaStem and focused
on producing a NCE will be 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 potential NCEs 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, VistaStem’s NCE-focused activities
will be limited and our business may be adversely
affected.
We may invest in producing NCEs for which there proves to be no
demand.
To generate revenue from VistaStem’s NCE-focused activities,
we must produce proprietary NCEs for which there proves to be
demand within the healthcare marketplace, and, if we intend to
out-license a particular NCE for development and commercialization
prior to market approval, then also among pharmaceutical companies
and other potential collaborators. However, we may produce 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 drug rescue 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
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.
VistaStem’s 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 our focus on
potential small molecule NCEs and explore potential applications of
our stem cell technology platform for RM. 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 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, drug rescue 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 so than in years past, certain political and
religious groups in the U.S. and elsewhere may 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
capabilities of our technology, which could 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 induced pluripotent stem cells
(
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 RM
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 $20.8
million and $24.6 million during our fiscal years ended March 31,
2020 and 2019, respectively, and a net loss of approximately $6.4
million during the six months ended September 30, 2020. At
September 30, 2020, we had an accumulated deficit of approximately
$208.3 million. We do not know whether or when we will become
profitable. Substantially all of our operating losses have resulted
from costs incurred in connection with our research and development
programs and from general and administrative costs associated with
our operations. We expect to incur increasing levels of operating
losses over the next several years and for the foreseeable future.
Our prior losses, combined with expected future losses, have had
and will continue to have an adverse effect on our
stockholders’ equity and working capital. We expect our
research and development expenses to significantly increase in
connection with nonclinical studies and clinical trials of our
product candidates. In addition, if we obtain marketing approval
for our product candidates, we may incur significant sales,
marketing and outsourced-manufacturing expenses should we elect not
to collaborate with one or more third parties for such services and
capabilities. As a public company, we incur additional costs
associated with operating as a public company. As a result, we
expect to continue to incur significant and increasing operating
losses for the foreseeable future. Because of the numerous risks
and uncertainties associated with developing pharmaceutical
products, we are unable to predict the extent of any future losses
or when we will become profitable, if at all. Even if we do become
profitable, we may not be able to sustain or increase our
profitability on a quarterly or annual basis.
Our ability to become profitable depends upon our ability to
generate recurring revenues. Through September 30, 2020, we have
generated approximately $22.7 million in revenues, consisting of
receipt of non-dilutive cash payments from collaborators,
sublicense revenue, including the $5.0 million cash payment
received under the EverInsight Agreement during the quarter ended
September 30, 2020, the majority of which has been recognized as
deferred revenue at that date, and research and development grant
awards from the NIH. We have not yet commercialized any product or
generated any revenues from product sales, and we do not know when,
or if, we will generate any revenue from product sales. We do not
expect to generate significant revenue unless and until we obtain
marketing approval of, and begin to experience sales of, PH94B,
PH10, AV-101 or another future product candidate, or we enter into
one or more development and commercialization agreements with
respect to PH94B, PH10, AV-101 or one or more other future product
candidates. Our ability to generate recurring revenue depends on a
number of factors, including, but not limited to, our ability
to:
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initiate and successfully complete nonclinical and clinical trials
that meet their prescribed endpoints;
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initiate and successfully complete all safety studies required to
obtain U.S. and foreign marketing approval for our product
candidates;
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timely complete and compose successful regulatory submissions such
as NDAs or comparable documents for both the U.S. and foreign
jurisdictions;
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commercialize our product candidates, if approved, by developing a
sales force or entering into collaborations with third parties for
sales and marketing capabilities; and
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achieve market acceptance of our product candidates in the medical
community and with third-party payors.
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If our pivotal Phase 3 studies of PH94B for the acute treatment of
anxiety in adults with SAD are successful, unless we enter into a
contractual arrangement for the commercialization of PH94B in the
U.S., we expect to incur significant sales and marketing costs as
we prepare to commercialize PH94B on our own in the U.S.. Even if
we initiate and successfully complete pivotal clinical trials of
PH94B and our other product candidates, and all of our product
candidates are approved for commercial sale, and despite expending
substantial capital for sales and marketing costs, PH94B and our
other product candidates may not be commercially successful. We may
not achieve profitability soon after generating product sales, if
ever. If we are unable to generate product revenue, we will not
become profitable and may be unable to continue operations without
continued funding.
We require additional financing to execute our business plan and
continue to operate as a going concern.
Our audited consolidated financial statements for the year ended
March 31, 2020 included in our Annual Report on Form 10-K filed
with the SEC on June 29, 2020 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, a substantial portion of our resources have
been dedicated to research and development of AV-101 and
VistaStem’s stem cell technology platform. In particular, (i)
for AV-101, we have expended substantial resources on research and
development of methods and processes relating to the production of
API and drug product, IND-enabling preclinical studies, Phase 1
clinical safety studies, and a Phase 2 clinical study completed in
2019 and (ii) for VistaStem, development
of
CardioSafe
3D
and cardiac stem cell technology for potential RM applications
licensed in connection with the Bayer Agreement. In addition,
beginning in 2018, we have expended a considerable portion of our
resources for research, development, manufacturing and regulatory
expenses related to the development and production of PH94B and
PH10. 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, 2020, we had cash and cash equivalents of
approximately $15.4 million. We do not believe this amount, absent
additional financing, 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. During the next twelve months, subject to securing
appropriate and adequate additional financing, we plan seek capital
to (i) prepare for and launch
a pivotal
Phase 3 clinical trial of PH94B for acute
treatment of anxiety in adult patients with SAD, (ii) prepare for
and launch a small exploratory
Phase 2A study of PH94B for
acute treatment of adult patients with adjustment disorder, (iii)
prepare for and potentially launch small exploratory Phase 2A
clinical studies of PH94B in postpartum anxiety, post-traumatic
stress disorder and/or pre-procedural (i.e pre-MRI) anxiety, (iv)
assess and potentially launch a Phase 1 study of AV-101 in
combination with probenecid to enable exploratory Phase 2A
development of the combination for treatment of CNS disorders,
(v) conduct several nonclinical
studies involving PH94B, PH10 and AV-101. and (vi) to fund our
internal operations.
Further, although we received the $5 million non-dilutive cash
upfront payment under the EverInsight Agreement in August 2020 and
expect to recognize that amount as revenue in future periods, we
have no other recurring source of revenue or recurring cash flows
from product sales to sustain our present activities, and we do not
expect to generate sustainable positive operating cash flows until,
and unless, we (i) out-license or sell a product candidate to a
third-party that is subsequently successfully developed and
commercialized, (ii) enter into additional license arrangements
involving our stem cell technology, or (iii) obtain approval from
the FDA or other regulatory authorities and successfully
commercialize, 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 future anticipated nonclinical studies and
clinical trials is highly uncertain, we cannot reasonably estimate
the actual amounts necessary to successfully complete the
development and commercialization of our product candidates, on our
own or in collaboration with others. As in prior periods, we will
continue to incur costs associated with other development programs
for PH94B, PH10 and AV-101. In addition, other unanticipated costs
may arise. As a result of these and other factors, we will need to
seek additional capital in the near term to meet our future
operating plans and 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 and requirements. 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 pursue and complete additional
financing arrangements in the future. 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 and requirements, we may seek additional capital if
market conditions are favorable or if we have specific strategic
considerations.
Our future capital requirements may depend on many factors,
including:
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the number and characteristics of the product candidates we
pursue;
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the scope, progress, results and costs of researching and
developing our product candidates, and conducting preclinical and
clinical studies;
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the timing of, and the costs involved in, obtaining regulatory
approvals for our product candidates;
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the cost of commercialization activities if any of our product
candidates are approved for sale, including marketing, sales and
distribution costs;
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the cost of manufacturing and formulating our product candidates
and any products we successfully commercialize;
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our ability to establish and maintain strategic partnerships,
licensing or other collaborative arrangements and the financial
terms of such agreements;
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market acceptance of our product candidates;
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the effect of competing technological and market
developments;
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our ability to obtain government funding for our research and
development programs;
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the costs involved in obtaining, maintaining and enforcing patents
to preserve our intellectual property;
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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;
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the timing, receipt and amount of potential future licensee fees,
milestone payments, and sales of, or royalties on, our future
products, if any; and
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the extent to which we may acquire or invest in additional
businesses, product candidates and technologies.
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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 if the market value of our common stock held by
non-affiliates is ever below $75 million at a time we seek to
utilize our effective registration statement on Form S-3. 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.
Current volatile and/or recessionary economic conditions in
the U.S. or abroad could adversely affect our business or our
access to capital markets in a material manner.
To date, our principal sources of capital used to fund our
development programs and other operations have been the net
proceeds we received from sales of equity securities, as described
herein.
We have and will
continue to use significant capital for the development and
commercialization of our product candidates, and, as such, we
expect to seek additional capital from future issuance(s) of our
securities, which may consist of issuances of equity and/or debt
securities, to fund our planned operations.
Accordingly, our results of operations and the implementation of
both our short-term and long-term business plan could be adversely
affected by general conditions in the global economy, including
conditions that are outside of our control, such as the impact of
health and safety concerns from the current COVID-19 pandemic. The
most recent global financial crisis caused by COVID-19 has resulted
in extreme volatility and disruptions in the capital and credit
markets. A prolonged economic downturn could result in a variety of
risks to our business and may have a material adverse effect on us,
including limiting or restricting our ability to access capital on
favorable terms, or at all, which would limit our ability
to obtain
adequate financing to maintain our operations.
We received funds from the Paycheck Protection Program enacted by
Congress under the Coronavirus Aid, Relief and Economic Security
Act, which funds must be repaid if we do not meet the criteria for
forgiveness established by the U.S. Small Business
Administration.
On April 22, 2020, we entered into a note payable agreement,
pursuant to which we received net proceeds of approximately
$224,000 from a potentially forgivable loan from the U.S. Small
Business Administration (
SBA
) pursuant to the Paycheck Protection Program
(
PPP
) enacted by Congress under the Coronavirus
Aid, Relief, and Economic Security Act (the
CARES Act
) administered by the SBA (the
PPP Loan
). The PPP Loan provides working capital to us and
matures on April 22, 2022. Under the CARES Act and the PPP Loan
Agreement, all payments of both principal and interest are deferred
until at least October 22, 2020. The PPP Loan accrues interest at a
rate of 1.00% per annum, and interest will continue to accrue
throughout the period the PPP Loan is outstanding, or until it is
forgiven. The CARES Act (including subsequent guidance issued by
SBA and U.S. Department of the Treasury related thereto) provides
that all or a portion of the PPP Loan may be forgiven upon our
request to the Lender, subject to requirements in the PPP Loan
Agreement and the CARES Act. We submitted our request for
forgiveness of the PPP Loan to the SBA on September 23, 2020.
Although no assurances can be given, we currently believe that we
will be able to satisfy the applicable requirements for forgiveness
of the PPP Loan and expect that the PPP Loan will be
forgiven.
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 continue to pursue private and public equity
offerings, debt financings, strategic collaborations and licensing
arrangements during 2020 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, including the impact of the ongoing
COVID-19 pandemic. 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, 2020, we had federal and state net operating
loss carryforwards of approximately $125.1 million and $64.1
million, respectively, which have begun to expire in fiscal 2021
and will continue to expire in future periods. Under
Section 382 of the Internal Revenue Code of 1986, as amended
(the
Code
), changes in our ownership may limit the amount
of our net operating loss carryforwards that could be utilized
annually to offset our future taxable income, if any. This
limitation would generally apply in the event of a cumulative
change in ownership of our company of more than 50% within a
three-year period. Any such limitation may significantly reduce our
ability to utilize our net operating loss carryforwards and tax
credit carryforwards before they expire. Any such limitation,
whether as the result of future offerings, prior private
placements, sales of our common stock by our existing stockholders
or additional sales of our common stock by us in the future, could
have a material adverse effect on our results of operations in
future years. We have not completed a study to assess whether an
ownership change for purposes of Section 382 has occurred, or
whether there have been multiple ownership changes since our
inception, due to the significant costs and complexities associated
with such study.
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, and Chief Financial Officer as well as our other
employees, advisors, consultants and scientific and clinical
collaborators. As of the date of this 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 pharmaceuticals field is intense. We will need to
hire additional personnel to expand our administrative, research
and development and commercial activities. We may not be able to
attract and retain quality personnel on acceptable
terms.
In addition, we rely on a broad and diverse range of strategic
consultants and advisors, including manufacturing, nonclinical and
clinical development, and regulatory advisors and CROs, to assist
us in designing and implementing our research and development and
regulatory strategies and plans for our product candidates. Our
consultants and advisors may be employed by employers other than us
and may have commitments under consulting or advisory contracts
with other entities that may limit their availability to
us.
As we seek to advance development of our product candidates, we may
need to expand our research and development capabilities and/or
contract with third parties to provide these capabilities for us.
As our operations expand, we expect that we will need to manage
additional relationships with various strategic partners and other
third parties. Future growth will impose significant added
responsibilities on members of management. Our future financial
performance and our ability to develop and commercialize our
product candidates and to compete effectively will depend, in part,
on our ability to manage any future growth effectively. To that
end, we must be able to manage our research and development efforts
effectively and hire, train and integrate additional management,
administrative, commercial and technical personnel. The hiring,
training and integration of new employees may be more difficult,
costly and/or time-consuming for us because we have fewer resources
than a larger organization. We may not be able to accomplish these
tasks, and our failure to accomplish any of them could prevent us
from successfully growing the Company.
If product liability lawsuits are brought against us, we may incur
substantial liabilities and may be required to limit
commercialization of our product candidates.
As we develop our product candidates. either on our own or in
collaboration with others, we will face inherent risks of product
liability as a result of the required clinical testing of such
product candidates, and will face an even greater risk if we or our
collaborators commercialize any such product candidates. For
example, we may be sued if PH94B, PH10, AV-101, any 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:
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decreased demand for product candidates that we may
develop;
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injury to our reputation;
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withdrawal of clinical trial participants;
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costs to defend the related litigation;
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a diversion of management's time and our resources;
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substantial monetary awards to trial participants or patients;
or
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product recalls, withdrawals or labeling, marketing or promotional
restrictions.
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Our inability to obtain and retain sufficient product liability
insurance at an acceptable cost to protect against potential
product liability claims could prevent or inhibit the
commercialization of products we develop. Although we maintain
general and product liability insurance, any claim that may be
brought against us could result in a court judgment or settlement
in an amount that is not covered, in whole or in part, by our
insurance or that is in excess of the limits of our insurance
coverage. Our insurance policies also have various exclusions, and
we may be subject to a product liability claim for which we have no
coverage. We will have to pay any amounts awarded by a court or
negotiated in a settlement that exceed our coverage limitations or
that are not covered by our insurance, and we may not have, or be
able to obtain, sufficient capital to pay such
amounts.
Unfavorable global economic or political conditions could adversely
affect our business, financial condition or results of
operations.
Our results of operations could be adversely affected by global
political conditions, as well as general conditions in the global
economy and in the global financial and stock markets. Global
financial and political crises cause extreme volatility and
disruptions in the capital and credit markets. A severe or
prolonged economic downturn, such as the recent economic downturn
triggered by the ongoing COVID-19 pandemic, could result in a
variety of risks to our business, including, weakened demand for
our product candidates and our ability to raise additional capital
when needed on acceptable terms, if at all. A weak or declining
economy could also strain our suppliers, possibly resulting in
supply disruption, or cause our customers to delay making payments
for our services. Any of the foregoing could harm our business and
we cannot anticipate all of the ways in which the current economic
climate and financial market conditions could adversely impact our
business.
We or the third parties upon whom we depend may be adversely
affected by natural disasters and our business continuity and
disaster recovery plans may not adequately protect us from a
serious disaster.
Natural disasters could severely disrupt our operations, and have a
material adverse effect on our business, results of operations,
financial condition and prospects. If a natural disaster, power
outage or other event occurred that prevented us from using all or
a significant portion of our headquarters, that damaged critical
infrastructure, such as the manufacturing facilities of our
third-party CDMOs, 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, CDMOs 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, CDMOs
and other contractors and consultants are vulnerable to attacks by
hackers, damage from computer viruses, unauthorized access, breach
due to employee error, malfeasance or other disruptions, natural
disasters, terrorism and telecommunication and electrical
failures.
Additionally, having shifted to remote working
arrangements, we also face a heightened risk of cybersecurity
attacks or data security incidents and are more dependent on
internet and telecommunications access and capabilities.
Any such attack or breach could
compromise our networks and the information stored there could be
accessed, publicly disclosed, lost or stolen. The legislative and
regulatory landscape for privacy and data protection continues to
evolve, and there has been an increasing amount of focus on privacy
and data protection issues with the potential to affect our
business, including recently enacted laws in a majority of states
requiring security breach notification. Thus, any access,
disclosure or other loss of information, including our data being
breached at our partners or third-party providers, could result in
legal claims or proceedings and liability under laws that protect
the privacy of personal information, disruption of our operations,
and damage to our reputation, which could adversely affect our
business.
While we have not experienced any such system failure, accident, or
security breach to date, if such an event were to occur and cause
interruptions in our operations, it could result in a material
disruption of our programs. For example, the loss of clinical trial
data for PH94B, PH10, AV-101 or other product candidates could
result in substantial delays in our regulatory approval efforts and
significantly increase our costs to recover or reproduce the data.
To the extent that any disruption or security breach results in a
loss of or damage to our data or applications or other data or
applications relating to our technology or product candidates, or
inappropriate disclosure of confidential or proprietary
information, we could incur liabilities and the further development
of our product candidates could be delayed.
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 a result of the U.S.
presidential 2020 elections, it is likely that these proposals will
receive increasing publicity which, in turn, may cause the
investing public to reduce the perceived value of pharmaceutical
companies. Any decrease in the overall perception of the
pharmaceutical industry may have an adverse impact on our share
price and may limit our ability to raise capital needed to continue
our drug development programs.
Risks Related to Our Intellectual Property Rights
If we are unable to adequately protect our proprietary technology
or obtain and maintain issued patents that are sufficient to
protect our product candidates, others could compete against us
more directly, which would have a material adverse impact on our
business, results of operations, financial condition and
prospects.
We strive to protect and enhance the proprietary technologies that
we believe are important to our business, including seeking patents
intended to cover our product candidates, their compositions and
formulations, their methods of use and methods of manufacturing and
any other inventions we consider important to the development of
our business. We also rely on trade secrets to protect aspects of
our business that are not amenable to, or that we do not consider
appropriate for, patent protection.
Our success will depend significantly on our ability to obtain and
maintain patent and other proprietary protection for commercially
important technology, inventions and know-how related to our
business, to defend and enforce our patents, to preserve the
confidentiality of our trade secrets and to operate without
infringing the valid and enforceable patents and proprietary rights
of third parties. We also rely on know-how, continuing
technological innovation and in-licensing opportunities to develop,
strengthen and maintain the proprietary position of our product
candidates. We own and have licensed patents and patent
applications related to product candidates PH94B, PH10, AV-101 and
also to hPSC technology.
Although we own and have licensed issued and allowed patents and
patent applications relating to PH94B, PH10 and AV-101 in the U.S.,
selected countries in the EU and other jurisdictions, we cannot yet
provide any assurances that any of our pending U.S. and additional
foreign patent applications will mature into issued patents and, if
they do, that any of our patents will include claims with a scope
sufficient to protect our product candidates or otherwise provide
any competitive advantage.
Moreover, other parties may have developed technologies that may be
related or competitive to our approach and may have filed or may
file patent applications and may have received or may receive
patents that may overlap or conflict with our patent properties,
for example, either by claiming the same methods or formulations or
by claiming subject matter that could dominate our patent position.
Such third-party patent positions may limit or even eliminate our
ability to obtain or maintain patent protection.
The uncertainty about adequate protection includes changes to the
patent laws through either legislative action to change statutory
patent law or court action that may reinterpret existing law in
ways affecting the scope or validity of issued patents. Moreover,
relevant laws differ from country-to-country.
The patent positions of biotechnology and pharmaceutical companies,
including our patent portfolio with respect to our product
candidates, involve complex legal and factual questions, and,
therefore, the issuance, scope, validity and enforceability of any
patent claims that we may be granted cannot be predicted with
certainty.
Our ability to obtain valid and enforceable patents depends, among
other factors, on whether the differences between our technology
and the prior art allow our inventions to be patentable
over relevant prior art. Such prior art includes, for example,
scientific publications, investment blogs, granted patents and
published patent applications. Patent uncertainty cannot be
eliminated because of the potential existence of other prior art,
about which we are currently unaware, that may be relevant to our
patent applications and patents and that may prevent a pending
patent application from being granted or result in an issued patent
being held invalid or unenforceable. Moreover, the relevant
standards for granting and reviewing patents varies among countries
in which we pursue patents.
In addition, some patent-related uncertainty exists because of the
challenge in finding and addressing all of the relevant and
material prior art in the biotechnology and pharmaceutical
fields. For example, there are numerous reports in the scientific
literature of compounds that target similar cellular receptors as
do certain of our product candidates or that were evaluated in
early (often pre-clinical) studies that did not progress to
regulatory approval. In addition, even some reports in the trade
press and public announcements made by us before the filing date of
our AV-101 patent applications mentioned that AV-101 was in
development for certain therapeutic purposes. For example, we
published a web post on the NIH clinical trials website prior to
the filing of our initial AV-101 patent application, which
describes unit doses for a then future study, but does not mention
treatment of depression and does not provide any preclinical or
clinical study data relating to depression or any other medical
condition, disease or disorder. This post was not submitted to the
United States Patent and Trademark Office (
USPTO
) in our two granted U.S. patents related to (i)
unit dose formulations of AV-101 effective to treat depression and
(ii) methods of treating depression with AV-101, respectively.
However, it was submitted in two continuation depression-related
AV-101 patent applications that have similar claims and the USPTO
did not make further rejection based on that post. Another source
of uncertainty pertains to patent properties that were in-licensed
by us for which prior art submissions were under the control of the
licensor. We rely on these licensors to have satisfied the relevant
disclosure obligations.
In the event any previously published prior art is deemed to be
invalidating prior art, it may cause certain of our issued
patents to be invalid and/or unenforceable, which would cause us to
lose at least part, and perhaps all, of the patent protection on
relevant product candidates. Such a loss of patent protection would
have a material adverse impact on our business.
Obtaining and maintaining our patent protection depends on
compliance with various procedural, document submission, fee
payment and other requirements imposed by governmental patent
agencies, and our patent protection could be reduced or eliminated
for non-compliance with these requirements.
The USPTO, the European Patent Office (
EPO
) and various other foreign governmental patent
agencies require compliance with a number of procedural,
documentary, fee payment and other provisions during the patent
process. There are situations in which noncompliance can result in
abandonment or lapse of a patent or patent application, resulting
in partial or complete loss of patent rights in the relevant
jurisdiction. In such an event, competitors might be able to enter
the market earlier than would otherwise have been the
case.
Even if patents do successfully issue, third parties may challenge
the validity, enforceability or scope of such issued patents or any
other issued patents we own or license, which may result in such
patents being narrowed, invalidated or held
unenforceable.
United States and foreign patents and patent applications may be
subject to various types of infringement and validity proceedings,
including interference proceedings,
ex parte
reexamination,
inter
partes
review proceedings,
supplemental examination and challenges in district court. Patents
may be subjected to opposition, post-grant review, invalidity
actions, or comparable proceedings lodged in various foreign, both
national and regional, patent offices or courts. These proceedings
could result in loss of the patent or denial of the patent
application or loss or reduction in the scope of one or more of the
claims of the patent or patent in such a way that they no longer
cover our product candidates or competitive
products.
Furthermore, though an issued patent is presumed valid and
enforceable, its issuance is not conclusive as to its validity or
its enforceability and it may not provide us with adequate
proprietary protection or competitive advantages against
competitors with similar products. Even if a patent issues and is
held to be valid and enforceable, competitors may be able to design
around our patents, for example, by using pre-existing or newly
developed technology. Other parties may develop and obtain patent
protection for more effective technologies, designs or
methods.
If we or one of our licensing partners initiated legal proceedings
against a third-party to enforce a patent covering one of our
product candidates, including patents related to PH94B, PH10 or
AV-101, the defendant could counterclaim that the patent covering
our product candidate is invalid and/or unenforceable. In patent
litigation in the United States, defendant counterclaims alleging
invalidity and/or unenforceability are commonplace. Grounds for a
validity challenge include alleged failures to meet any of several
statutory requirements, including lack of novelty, obviousness or
non-enablement. Grounds for unenforceability assertions include
allegations that someone connected with prosecution of the patent
withheld relevant information from the USPTO or made a misleading
statement during prosecution. Third parties may also raise similar
claims before administrative bodies in the United States or abroad,
even outside the context of litigation. If a defendant were to
prevail on a legal assertion of invalidity and/or unenforceability,
we would lose at least part, and perhaps all, of the patent
protection on our product candidates. Such a loss of patent
protection would have a material adverse impact on our
business.
In addition, such patent-related proceedings may be costly. Thus,
any patent properties that we may own or exclusively license
ultimately may not provide commercially meaningful protection
against competitors. Furthermore, an adverse decision in an
interference proceeding can result in a third party receiving the
patent right sought by us, which in turn could affect our ability
to develop, market or otherwise commercialize our product
candidates.
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:
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any issued patents related to PH94B, PH10, AV-101 or any
pending patent applications, if issued and challenged by others,
will include or maintain claims having a scope sufficient to
protect PH94B, PH10, AV-101 or any other products or product
candidates against generic or other competition, particularly
considering that any patent rights to these compounds
per se
have expired;
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any of our pending patent applications will issue as patents at
all;
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we will be able to successfully commercialize our product
candidates, if approved, before our relevant patents
expire;
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we were the first to make the inventions covered by each of our
patents and pending patent applications;
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we were the first to file patent applications for these
inventions;
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others will not develop similar or alternative technologies that do
not infringe our patents;
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others will not use pre-existing technology to effectively compete
against us;
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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;
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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;
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we will develop additional proprietary technologies or product
candidates that are separately patentable; or
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our commercial activities or products will not infringe upon the
patents or proprietary rights of others.
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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:
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cease developing, selling or otherwise commercializing our product
candidates;
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pay substantial damages for past use of the asserted intellectual
property;
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obtain a license from the holder of the asserted intellectual
property, which license may not be available on reasonable terms,
if at all; and
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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.
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Any of these risks coming to fruition could have a material adverse
effect on our business, results of operations, financial condition
and prospects.
We may be subject to claims challenging the inventorship or
ownership of our patents and other intellectual
property.
We enter into confidentiality and intellectual property assignment
agreements with our employees, consultants, outside scientific
collaborators, sponsored researchers and other advisors. These
agreements generally provide that inventions conceived by the party
in the course of rendering services to us will be our exclusive
property. However, these agreements may not be honored and may not
effectively assign intellectual property rights to us. For example,
even if we have a consulting agreement in place with an academic
advisor pursuant to which such academic advisor is required to
assign any inventions developed in connection with providing
services to us, such academic advisor may not have the right to
assign such inventions to us, as it may conflict with his or her
obligations to assign their intellectual property to his or her
employing institution.
Litigation may be necessary to defend against these and other
claims challenging inventorship or ownership. If we fail in
defending any such claims, in addition to paying monetary damages,
we may lose valuable intellectual property rights, such as
exclusive ownership of, or right to use, valuable intellectual
property. Such an outcome could have a material adverse effect on
our business. Even if we are successful in defending against such
claims, litigation could result in substantial costs and be a
distraction to management and other employees.
We do not seek to protect our intellectual property rights in all
jurisdictions throughout the world and we may not be able to
adequately enforce our intellectual property rights even in the
jurisdictions where we seek protection.
Filing, prosecuting and defending patents on product candidates in
all countries and jurisdictions throughout the world is
prohibitively expensive, and our intellectual property rights in
some countries outside the U.S. could be less extensive than those
in the United States, assuming that rights are obtained in the U.S.
In addition, the laws of some foreign countries do not protect
intellectual property rights to the same extent as federal and
state laws in the U.S. Consequently, we may not be able to prevent
third parties from practicing our inventions in all countries
outside the U.S., or from selling or importing products made using
our inventions in and into the United States or other
jurisdictions. The statutory deadlines for pursuing patent
protection in individual foreign jurisdictions are based on the
priority date of each of our patent applications. For the pending
patent applications relating to AV-101, as well as for other of the
patent families that we own or license, the relevant statutory
deadlines have not yet expired. Thus, for each of the patent
families that we believe provide coverage for our lead product
candidates or technologies, we will need to decide whether and
where to pursue protection outside the U.S.
Competitors may use our technologies in jurisdictions where we do
not pursue and obtain patent protection to develop their own
products and further, may export otherwise infringing products to
territories where we have patent protection, but enforcement is not
as strong as that in the U.S. These products may compete with our
products and our patents or other intellectual property rights may
not be effective or sufficient to prevent them from competing. Even
if we pursue and obtain issued patents in particular jurisdictions,
our patent claims or other intellectual property rights may not be
effective or sufficient to prevent third parties from so
competing.
The laws of some foreign countries do not protect intellectual
property rights to the same extent as the laws of the U.S. Many
companies have encountered significant problems in protecting and
defending intellectual property rights in certain foreign
jurisdictions. The legal systems of some countries, particularly
developing countries, do not favor the enforcement of patents and
other intellectual property protection, especially those relating
to biotechnology and pharmaceuticals. This could make it difficult
for us to stop the infringement of our patents, if obtained, or the
misappropriation of our other intellectual property rights. For
example, many foreign countries have compulsory licensing laws
under which a patent owner must grant licenses to third parties
under certain circumstances. In addition, many countries limit the
enforceability of patents against third parties, including
government agencies or government contractors. In these countries,
patents may provide limited or no benefit. Patent protection must
ultimately be sought on a country-by-country basis, which is an
expensive and time-consuming process with uncertain outcomes.
Accordingly, we may choose not to seek patent protection in certain
countries, and we will not have the benefit of patent protection in
such countries.
An unfavorable outcome could require us or our licensors or
collaborators to cease using the related technology or developing
or commercializing our product candidates, or to attempt to license
rights to it from the prevailing party. Our business could be
harmed if the prevailing party does not offer us or our licensors
or collaborators a license on commercially reasonable terms or at
all. Even if we or our licensors or collaborators obtain a license,
it may be non-exclusive, thereby giving our competitors access to
the same technologies licensed to us or our licensors or
collaborators. In addition, we could be found liable for monetary
damages, including treble damages and attorneys’ fees, if we
are found to have willfully infringed a patent. A finding of
infringement could prevent us from commercializing our product
candidates or force us to cease some of our business operations,
which could materially harm our business.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be
compromised by disclosure during this type of litigation. There
could also be public announcements of the results of hearings,
motions or other interim proceedings or developments. If securities
analysts or investors perceive these results to be negative, it
could have a material adverse effect on the price of our common
stock.
Furthermore, proceedings to enforce our patent rights in foreign
jurisdictions could result in substantial costs and divert our
efforts and attention from other aspects of our business, could put
our patents at risk of being invalidated or interpreted narrowly,
could put our patent applications at risk of not issuing and could
provoke third parties to assert claims against us. We may not
prevail in any lawsuits that we initiate and the damages or other
remedies awarded, if any, may not be commercially meaningful.
Accordingly, our efforts to enforce our intellectual property
rights around the world may be inadequate to obtain a significant
commercial advantage from the intellectual property that we develop
or license.
We are dependent, in part, on licensed intellectual property. If we
were to lose our rights to licensed intellectual property, we may
not be able to continue developing or commercializing our product
candidates, if approved. If we breach any of the agreements under
which we license the use, development and commercialization rights
to our product candidates or technology from third parties or, in
certain cases, we fail to meet certain development or payment
deadlines, we could lose license rights that are important to our
business.
For PH94B, PH10 and certain stem cell technologies, we are a party
to a number of license agreements under which we are granted rights
to intellectual properties that are or could become important to
our business. Our existing license agreements impose, and we expect
that any future license agreements will impose on us, various
development, regulatory and/or commercial diligence obligations,
payment of fees, milestones and/or royalties and other obligations.
If we fail to comply with our obligations under these agreements,
or we are subject to a bankruptcy, the licensor may have the right
to terminate the license, in which event we would not be able to
develop or market products, which could be covered by the license.
Our business could suffer, for example, if any current or future
licenses terminate, if the licensors fail to abide by the terms of
the license, if the licensed patents or other rights are found to
be invalid or unenforceable, or if we are unable to enter into
necessary licenses on acceptable terms.
As we have done previously, we may need to obtain licenses from
third parties to advance our research or allow commercialization of
our product candidates, and we cannot provide any assurances that
third-party patents do not exist that might be enforced against our
current product candidates or future products in the absence of
such a license. We may fail to obtain any of these licenses on
commercially reasonable terms, if at all. Even if we are able to
obtain a license, it may be non-exclusive, thereby giving our
competitors access to the same technologies licensed to us. In that
event, we may be required to expend significant time and resources
to develop or license replacement technology. If we are unable to
do so, we may be unable to develop or commercialize the affected
product candidates, which could materially harm our business and
the third parties owning such intellectual property rights could
seek either an injunction prohibiting our sales, or, with respect
to our sales, an obligation on our part to pay royalties and/or
other forms of compensation.
Licensing of intellectual property is of critical importance to our
business and involves complex legal, business and scientific
issues. Disputes may arise between us and our licensors regarding
intellectual property subject to a license agreement,
including:
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the scope of rights granted under the license agreement and other
interpretation-related issues;
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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;
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our right to sublicense patent and other rights to third parties
under collaborative development relationships;
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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
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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.
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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 if the active ingredient of PH94B, PH10 or
AV-101 is used in another drug company’s product candidate
and that product candidate is the first to obtain FDA
approval.
Moreover, the applicable time period or the scope of patent
protection afforded could be less than we request. If we are unable
to obtain patent term extension or restoration or the term of any
such extension is less than we request, our competitors may obtain
approval of competing products following our patent expiration, and
our ability to generate revenues could be materially adversely
affected.
Similar kinds of patent term and regulatory and data protection
periods are available outside of the U.S. We will pursue such
opportunities to extend the exclusivity of our products, but we
cannot predict the availability of such exclusivity pathways or
that we will be successful in pursuing them.
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:
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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;
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we might not have been the first to make the inventions covered by
a pending patent application that we own;
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we might not have been the first to file patent applications
covering an invention;
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others may independently develop similar or alternative
technologies without infringing our intellectual property
rights;
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pending patent applications that we own or license may not lead to
issued patents;
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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;
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third parties may compete with us in jurisdictions where we do not
pursue and obtain patent protection;
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we may not be able to obtain and/or maintain necessary or useful
licenses on reasonable terms or at all; and
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the patents of others may have an adverse effect on our
business.
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Should any of these events occur, they could significantly harm our
business and results of operations.
With regard to our stem cell technology, if, instead of identifying
a potential NCE candidate based on information available to us in
the public domain, we seek to in-license a NCE candidate from
biotechnology, medicinal chemistry and pharmaceutical companies,
academic, governmental and nonprofit research institutions,
including the NIH, or other third parties, there can be no
assurances that we will obtain material ownership or economic
participation rights over intellectual property we may derive from
such licenses or similar rights to the NCEs that we may produce and
develop. If we are unable to obtain ownership or substantial
economic participation rights over intellectual property related to
NCEs we produce and develop, our business may be adversely
affected.
Risks Related to our Securities
If we fail to comply with the continued listing requirements of the
Nasdaq Capital Market, our common stock may be delisted and the
price of our common stock and our ability to access the capital
markets could be negatively impacted.
On January 31, 2020, we were notified by the
Nasdaq Stock Market, LLC (
Nasdaq
) that we were not in compliance with the minimum
bid price requirements set forth in Nasdaq Listing Rule
5550(a)(2) for continued listing on the Nasdaq Capital
Market. Nasdaq Listing Rule 5550(a)(2) requires listed
securities to maintain a minimum bid price of $1.00 per share, and
Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet
the minimum bid price requirement exists if the deficiency
continues for a period of 30 consecutive business days. The
notification provided that we had 180 calendar days, or until July
29, 2020, to regain compliance with Nasdaq Listing Rule
5550(a)(2) (the
Bid Price
Rule
). To regain compliance,
the bid price of our common stock must have a closing bid price of
at least $1.00 per share for a minimum of 10 consecutive business
days.
On April 17, 2020, in response to the extraordinary market
conditions caused by the COVID-19 pandemic, Nasdaq instituted a
longer period of time for companies such as ours to regain
compliance with certain continued listing requirements, including
the Bid Price Rule. As a result, we were granted until October 12,
2020 to regain compliance with the Bid Price Rule. We did not
regain compliance with the Bid Price Rule by October 12, 2020,
however we notified Nasdaq in writing of our intent to cure the
deficiency during a second compliance period. On October 13, 2020,
Nasdaq notified us that based on our satisfaction of the remaining
Nasdaq Capital Market listing requirements and our statement
of intent to cure the bid price deficiency, Nasdaq had granted us a
second 180-day compliance period, or through April 12, 2021, in
which to regain compliance. If we fail to regain compliance during
the second 180-day period, then Nasdaq will notify us of
its determination to delist our common stock, at which point we
will have an opportunity to appeal the delisting determination to a
hearings panel.
No assurance can be given that we will meet applicable Nasdaq
continued listing standards. Failure to meet applicable Nasdaq
continued listing standards could result in a delisting of our
common stock, which could materially reduce the liquidity of our
common stock and result in a corresponding material reduction in
the price of our common stock. In addition, delisting could harm
our ability to raise capital through alternative financing sources
on terms acceptable to us, or at all, and may result in the
inability to advance our drug development programs, potential loss
of confidence by investors and employees, and fewer business
development opportunities.
Market volatility may affect our stock price and the value of your
investment.
The market price for our common stock, similar to that of other
biopharmaceutical companies, is likely to remain highly volatile.
The market price of our common stock may fluctuate significantly in
response to a number of factors, most of which we cannot control,
including, among others:
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volatility resulting from uncertainty and general economic
conditions caused by the ongoing COVID-19 pandemic;
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plans for, progress of or results from nonclinical and clinical
development activities related to our product
candidates;
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the failure of the FDA or other regulatory authority to approve our
product candidates;
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announcements of new products, technologies, commercial
relationships, acquisitions or other events by us or our
competitors;
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the success or failure of other CNS therapies;
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regulatory or legal developments in the U.S. and other
countries;
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announcements regarding our intellectual property
portfolio;
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failure of our product candidates, if approved, to achieve
commercial success;
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fluctuations in stock market prices and trading volumes of similar
companies;
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general market conditions and overall fluctuations in U.S. equity
markets;
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variations in our quarterly operating results;
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changes in our financial guidance or securities analysts’
estimates of our financial performance;
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changes in accounting principles;
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our ability to raise additional capital and the terms on which we
can raise it;
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sales or purchases of large blocks of our common stock, including
sales or purchases by our executive officers, directors and
significant stockholders;
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establishment
of short positions by holders or non-holders of our stock or
warrants;
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additions or departures of key personnel;
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discussion of us or our stock price by the press and by online
investor communities; and
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other risks and uncertainties described in these risk
factors.
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Future sales and issuances of our common stock may cause our stock
price to decline.
Sales or issuances of a substantial number of shares of our common
stock in the public market, or the perception that such sales or
issuances are occurring or might occur, could significantly reduce
the market price of our common stock and impair our ability to
raise adequate capital through the sale of additional equity
securities.
The stock market in general, and small biopharmaceutical companies
like ours in particular, have frequently experienced significant
volatility in the market prices for securities that often has been
unrelated to the operating performance of the underlying companies.
These broad market and industry fluctuations may adversely affect
the market price of our common stock, regardless of our actual
operating performance. In certain situations in which the market
price of a stock has been volatile, holders of that stock have
instituted securities class action litigation against the company
that issued the stock. If any of our stockholders were to bring a
lawsuit against us, the defense and disposition of the lawsuit
could be costly and divert the time and attention of our management
and harm our operating results. Additionally, if the trading volume
of our common stock remains low and limited there will be an
increased level of volatility and you may not be able to generate a
return on your investment.
A portion of our total outstanding shares are restricted from
immediate resale but may be sold into the market in the near
future. Future sales of shares by existing stockholders could cause
our stock price to decline, even if our business is doing
well.
Sales of a substantial number of shares of our common stock in the
public market could occur at any time. These sales, or the
perception in the market that the holders of a large number of
shares intend to sell shares, could reduce the market price of our
common stock. Future sales and issuances of a substantial number of
shares of our common stock in the public market, including shares
issued upon the conversion of our Series A Preferred, Series B
Preferred or Series C Preferred, and the exercise of outstanding
options and warrants for common stock which are issuable upon
exercise, in the public market, or the perception that these sales
and issuances are occurring or might occur, could significantly
reduce the market price for our common stock and impair our ability
to raise adequate capital through the sale of equity
securities.
If equity research analysts do not publish research or reports
about our business or if they issue unfavorable commentary or
downgrade our common stock, the price of our common stock could
decline.
The trading market for our common stock relies in part on the
research and reports that equity research analysts publish about us
and our business. We do not control these analysts. The price of
our common stock could decline if one or more equity research
analysts downgrade our common stock or if such analysts issue other
unfavorable commentary or cease publishing reports about us or our
business.
There may be additional issuances of shares of preferred stock in
the future.
Our Restated Articles of Incorporation, as amended
(the
Articles
), permit us to issue up to 10.0 million shares of
preferred stock. Our Board has authorized the issuance of (i)
500,000 shares of Series A Preferred, all of which shares are
issued and outstanding at September 30, 2020; (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, 2020; 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, 2020. 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. Unregis
t
ered Sales of Equity Securities and Use of
Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 6. EXHIBITS
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Exhibit
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Number
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Description
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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
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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
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XBRL Taxonomy Extension Presentation Linkbase
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SIGNA
T
URES
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 12, 2020
-80-
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. Sublicensing and Collaborative AgreementsNote 12. 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